A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
What is a loaded mutal fund?
It’s basically a mutual fund with an extra sales cost. If you have a front load mutual fund, you pay to buy into the fund.
If you have a back load, you pay when you sell your fund. A no load fund may have administrative costs, but it is not supposed to have a sales cost.
….that there is no real difference historically between the performance of load funds and no-load funds in terms of year-to-year performance.
In fact, according to the latest survey by the mutual fund data analyzer Morningstar, even excluding the drag on returns if the load were included in the calculation, no-load funds actually have a superior record to load funds over the last 3-year and 5-year periods.
Another interesting point that the Fool.com site brought up:
Because the average large-cap value fund charges 1.17% more than the index, it has to outperform by at least that much to create value for investors — and more (maybe a lot more) if sales charges are involved.
That’s a high hurdle for fund managers, many of whom trip and injure their clients’ portfolios in the process.
What’s a good expense ratio to look for?
In generally it appears that lower is better, but you have to factor it the performance of your fund. After all, what good is a lower expense ratio if your fund does poorly?
My Take on Mutual Fund Expenses
In general, I would pass on paying for a loaded fund. I’s much easier and financially sound to get a low cost index fund.
How about you? What do you invest in?
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Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..