No Load Funds

The load is defined as the tax or the Commission that the investor pays to a mutual fund at the time of purchase or redemption of mutual fund units.

If the Commission is charged when an investor buys shares, he is known as a front load. On the other hand, if the Commission is charged when the investors redeems his shares, it is known as a back-end load.

Some funds apply back-end loads only if shares are redeemed within a specified time after being purchased.

The argument for applying loads on mutual fund transactions is that these charges will discourage investors from frequent trading in mutual funds. If investors quickly move in and out of mutual funds, funds have to maintain a high cash position to meet those redemptions, which in turn reduces the fund's performance. Also frequent trading means the expenses of mutual funds rise.

There are various arguments against the funds charge:

-The costs that mutual funds collect the charges are passed on to fund dealers. The charges do not provide incentives for the fund manager for better fund performance. In other words, a load fund has no reason for its leaders should perform better than those of empty land.

-In recent decades, no difference was seen in the statements of the load and load funds (if the charges are not considered.) When loads are considered, the load fund investors have actually earned less that investors in empty land.

"When a seller knows he will get a commission charge of a fund, it tends to push the cargo bed longer - even if the load funds are performing poorly compared to the no-load funds.

-The expenses are underestimated by the mutual funds. If an investor invests $ 1,000 in a fund sales charge of 5%, the actual investment is only $ 950. Thus his actual load is $ 50 to $ 950 investment - a load of 5.26%.

If an investor is already invested in a fund charging, it does not make sense to leave now. The charge has already been paid. The decision to retain or to sell should be based on what investors think about the future performance of the Fund. In some funds, the output load depends on the period for which the fund was held.Check details of the fund prospectus for more information.

In most cases, it is best to avoid load funds, but investors should keep in mind one thing. Sometimes load funds can be a better choice than empty land. For example, an investor has the choice between two classes in a fund - class A and class B. Class A has 3% of the load before the end of the class B and did not load. The investor, however, lack the fine print, which states that Class B is 1% 12b-1 annual fee.

If the fund will gain 10% each year, his return to category A (from the actual amount invested $ 970) will

($ 970) X (1.10) X (1.10) X (1.10) X (1.10) X (1.10) = $ 1,562

For class B, yields will

($ 1,000) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0.99) X (1.10) X (0, 99) X (1.10) X (0.99) = $ 1,532.

Thus, the example above is an exception, where in the long term, the fund will charge the fund more efficient than vacuum (charge 12b-1).

The fact is that a fund with no sales charges may be considered a true no-load funds, if he receives royalties from investors in the form of 12b-1 and other charges.