In: Categories » Legal and finance » Stocks and mutual funds » Load funds, no load funds and low load funds
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Mutual funds can be classified as load funds, no-load funds, or low-load funds. The load fee is the sales charge, the amount the investor pays to buy shares. It is a direct deduction from the amount of money that actually goes to work for the investor in the mutual fund.
Some fund families, such as Fidelity, offer both no-load funds and low-load funds. For example, Fidelity's famed Magellan Fund, traditionally one of the two largest mutual funds in the country, has a load fee, or initial sales charge, of three percent. This would be roughly midway between a true no-load fund, with no sales charge, and a typical load fund with a sales charge of 5.25 to 5.75 percent of assets. Of course, investors purchase a particular load fund because they expect the fund to perform better than comparable no-load funds, it has the objective they are looking for, the investor particularly likes the fund manager, and so forth. This whole issue—the pursuit of performance by investors as they seek out various actively managed funds—is the key issue that dominates our discussion of mutual funds. It is important to understand that the load fee, or sales charge, is a straight deduction from the amount of money an investor puts in the fund. For example, with a $10,000 investment, a five percent load fee results in a $500 deduction to compensate the sales force, and the investor ends up with a net $9,500 investment in the mutual fund. In contrast, had the investor purchased a no-load fund, the entire $10,000 would go to work in the fund.
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