If brokerage fees did not exist, many people would make high returns on their investments. The brokerage fees and financial advisor’s commission reduce your overall net gain or increase your overall loss. In other words, extra fees have a negative impact on your investments.
The no-load mutual fund takes this problem into consideration, and reduces the extra fees. Most investment books that I have read advice against mutual funds. The primary reason is that fees are too high. There is a fee that goes to the financial adviser, and other commissions that are paid on yearly basis.
The no-load fund has a purpose, which is to use 100% of your investment effectively. This means that out of your investment, you won’t lose money on fees and commissions. So, let’s assume that you invest $1,000 in a no-load fund. All this money will be invested in the fund, and your gains will be on $1,000.
However, if you purchase a fund that is known as a load-fund, then not all your investment will be used. For example, if you invest $1,000 and the commission of the broker and fees are 10% of your investments, then you are technically only investing $900. You lose $100 without even making an investment.
But, load-fund do have their advantages. An investor purchases a no-load fund, through the fund’s website or the actually company. This means that the investor must choose his/her own mutual fund. Many investors who invest in mutual funds are beginners. They don’t know how to make wise investment choices. To avoid the fees, many beginners purchase a no-load fund, and end up losing most of their money.
The load-fund has brokerage fees because the financial adviser is a professional investor and has the qualifications to choose the right fund (in most cases). If you choose the right financial adviser, the fees can be worth the money. You can still make profits through a load-fund, but all the brokerage fees will reduce the profits.
The purpose of the no-load fund is to save you money and use all your investment effectively. No-load funds are for people that have the ability to choose their own funds. If you don’t need a financial adviser to make investment decisions for you, then you can invest in a no-load fund.
You should also beware that some financial advisers will try to convince you to invest in a load-fund to get more commissions. If this is the case, then you should change your financial adviser, and look for someone who works for the investors and not for the fund company.