No-load fund Definition

Deeper definition

No-load funds have no front end, back end or sales commissions associated with them. Even if the fund is advertised as a no-load fund, it can still charge fees. The Financial Industrial Regulatory Authority (FINRA) permits no-load mutual funds to charge a 12b-1 fee (which pays for marketing and promotion expenses) of up to 0.25 percent of its average annual assets. This fee is included in the fund’s expense ratio. No-load funds may also charge redemption fees, exchange fees, and account fees. No-load funds generally have lower expense ratios than load funds.

Studies have shown that no-load funds generally perform the same as loaded funds. Why would an investor purchase loaded funds? Some investors are more comfortable making investment decisions only after consulting with a financial professional. Loaded funds are sold by brokers, financial planners, and investment advisers. When you purchase a loaded fund, you’re also paying for professional investment advice. Also, making investment decisions takes time and research. Busy investors may not have the time to dedicate to conduct investment research.

By purchasing no-load funds directly from the investment company, you forgo advice from a financial expert and commit to doing the investment research on your own.

No-load fund example

If an investor invests $5,000 in a no-load fund, all $5,000 is invested in the fund. Unlike no-load funds, loaded funds do charge commissions or sales charges at the time of the fund’s sale. If an investor invests $5,000 in a loaded fund that charges a front-end load of 4 percent, the amount invested is only $4,800. If the fund has deferred sales charges, the commission is withdrawn from the proceeds at the time of the sale.