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What are No-Load Mutual Funds?

Luke Arthur
Luke Arthur

No-load mutual funds are a type of mutual fund that allows the investor to buy directly from a mutual fund company instead of through a financial broker. The advantage of no-load mutual funds is they do not charge a sales commission when shares are purchased. This allows investors to put more of their money into the market and potentially generate bigger returns. With this type of fund, investors will still have to pay operating expenses.

When an individual purchases shares of a mutual fund through an investment adviser or broker, a certain amount of money will go toward a sales charge. The money will go to pay the broker a commission for selling the fund to the investor. No-load mutual funds use a different approach. Instead of selling shares through brokers, the mutual fund company sells shares directly to the public. Since there is no intermediary, the mutual fund company does not have to charge any extra money for commission.

Businessman with a briefcase
Businessman with a briefcase

Investing in no-load mutual funds provides the investor with the opportunity to invest more money into the market. With regular mutual funds, as much as 6% of each purchase will go toward commission for the broker. This means the investor will be investing 6% less into the market. Over a long period of time, this can add up to a big difference in how much money is invested in the market. By utilizing no-load mutual funds, the investor can get around the commission and buy more shares.

With this type of mutual fund, the investor will still have to pay a certain amount of money in operating expenses to the fund. This is generally taken out of the proceeds generated from trading at the end of the year. The operating expenses are used to pay for the salaries of the fund managers as well as administrative costs associated with running the mutual fund. Investors can look at the expense ratio of each fund before deciding on which fund to invest in to save even more money on top of avoiding the sales charge.

No-load mutual funds provide a way for investors to purchase shares of a diversified portfolio. Most individuals do not have enough money to sufficiently diversify their portfolios in the market. With a mutual fund, investors can pool their resources together with other investors and enough money will be generated to create true diversification.

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