Collective investment strategies, such as mutual bonds, are a way for individual investors to diversify their portfolios and make sure all their financial eggs are not in one basket. Additionally, the benefit of participating in mutual funds, that investors can get into investment options that may have been previously cost prohibitive to them. There are two basic options for mutual funds, load or no load funds.
Mutual funds that are considered a load fund have a sales charge or commission associated with the purchase, or sales transaction. Many mutual funds are handled by an investment broker. They get paid commission for researching, planning, and managing the mutual fund.
Within load funds there are front-end load costs which are paid at the initial purchase transaction. There are also back-end loans which is the commission taken out at the sale of a mutual fund. Finally there is a level-load which is a commission paid throughout the time of the mutual investment. If the commissions for a level-load mutual fund do not exceed .25%, then the mutual fund can call itself a “no-load fund” in its marketing material.
No load funds are those investment opportunities that do not have an additional transaction cost involved. When a person purchases $2000 of no load funds, all the money goes directly into that fund. The shares are sold without commission or a sales charge (although additional fees may apply). Since the shares of a mutual fund are dispersed directly by the investment company, mutual funds are considered no load funds.
Historically load funds and no load funds perform at similar levels so investors should not favor one over the other for that reason. Before choosing any type of mutual fund investment, make sure to read its associated prospectus to find out its load status and all other possible fees associated with it.