Loaded Mutual Fund Loosing Position
When choosing between load and no load mutual funds, always listen to your inner voice and decide on the latter. Even though your stock broker insurance salesmen try to convince that loaded mutual funds are a better deal, they will not be successful in providing you a sound argument in favor of this alternative.
This article aims at explaining you the reasons for avoiding loaded mutual funds. Additionally, it provides advice on how to detect loaded funds.
Loaded Mutual Fund Explanation
A loaded mutual fund is the one that includes a sales load. On the other hand, a sales load represents the fee that you pay the broker of the fund as a compensation for his/her services. Generally, you benefit in no way when paying the load fee. The latter has different forms and varies from 4% to 8%. Three basic types of loads can be identified:
- Front-end load
This type of load is usually connected with Class A shares and is paid immediately when you purchase the shares.
- Back-end load (also known as Deferred load)
This type of load is usually connected with Class B shares and is paid when you sell the shares.
- Constant load
This type of load is usually associated with Class C shares and is paid annually. In the constant load funds you may be charged a full load once you sell the shares.
Many financial experts recommend the front-end load mutual funds as the least evil when speaking about loaded funds. But why do we have to deal with "evil" at all. Our recommendation is not to purchase loaded funds!
The Right Choice
Whenever you are facing the dilemma of choosing between a loaded and no load fund, choose the one with no load. There is a simple reason for that - when purchasing a loaded fund you pay a commission to your broker. In this way you have less start-up money. This means that even if your loaded fund is increasing the size of your account at the same pace as any other no load fund, you will still end with less money than if you had bet on a no load fund.
No matter how convincing your broker may sound, you benefit in no way from this load. So far no one has offered a reasonable argument in favor of loads that have not been successfully turned into dust! No matter what your broker says, you do not get any privileges nor does this money go to the management of the fund. And remember that every loaded mutual fund has its load free "brother" waiting to be discovered. This is your tasks and don't count on your broker to present it to you since s/he will not get his/her commission.
Always try to invest your hard-earned money in no load mutual funds. They get you rid of the redundant fees, which you otherwise have to pay with the loaded counterparts. Additionally, be careful about the 12b-1 fees, which represent another dark side of the mutual funds.
Be aware of the fact that there are myriads of load free mutual funds that perform as well or even better. These no-load funds are available to investors through the different fund families and brokers.
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