Mutual funds can be a good choice for many people who want to invest in the stock market. In general, mutual funds invest in a variety of stocks, allowing an investor to have a lot of exposure to many different companies and thereby minimizing his or her risk. It is important, however, for any investor to understand what fees are being charged by the investment firms selling mutual funds. Fees and loads can quickly total or surpass all of an investor’s gains from their mutual funds.
All mutual funds can be classified as either load or no load mutual funds. Funds with a load are mutual funds that come with a sales charge, while no-load funds do not carry a sales charge. Investment funds typically earn their money from either the load charged on the fund, or an annual commission of the total value of the fund, otherwise known as a maintenance fee.
Be aware that just because a fund charges a load, it can also charge an investor an account maintenance fee, annual commission, or other fees. In other words, just because a mutual fund charges an upfront sales charge (as in the case of Type A funds), or charges an investor upon selling the fund (an in the case of Type B funds), there is no guarantee that the investor is not being charged other fees as well.
To decide which type of fund is right for an investor, however, it is necessary to understand how the different types of loads work. In general, loaded mutual funds come in three basic types. Type A shares are also called front-end loaded, type B funds or shares are called back-end loaded and type C funds or shares have loads that can vary.
No-load funds, on the other hand, do not charge any of these fees to an investor. Instead, a no-load fund will make its money from charging the investor a commission or maintenance fee. In general, these fees are around one percent of the account’s total value. These fees are usually taken directly from the investment itself, essentially forcing an investor to sell a small portion of their investment in order to pay the fee. Depending on market conditions, this could eat up more of an investor’s return than paying a load.
Deciding if a load or no-load fund is the right choice is dependent on several factors. While many investment advisors support no-load funds because of the lack of upfront fees, it is important to look at the total amount of fees being charged. A fund with a one percent load and no maintenance fee, for example, will cost an investor less than a fund that has no-load and charges an investor a maintenance fee of two percent a year.