No Load Funds

• No load funds do not involve a broker commission
• Load funds involve broker commissions, and possible conflicts of interest between your broker’s financial interests and the best investment choices for you
• The funds prospectus and 12b-1 marketing fee percentage can help you determine if a mutual fund is really one of the no load funds

Examining loaded funds versus no load funds means examining any possible conflicts of interest when it comes to each type of fund. Mutual fund expenses can include load fees and 12b-1 marketing fees, and each fund type has different rules and regulations in place. A load fee is usually a broker commission, which goes to the broker who advises you on investment matters including which mutual funds to purchase. No load mutual funds do not include commissions, because you choose which funds to invest in and where to place your capital. Load fees may be charged up front when you make the investment or at the back end when you sell it. The 12b-1 marketing fee should be disclosed in the funds prospectus and under the fund operational expense ratio, but load fees are not normally disclosed the same way because these are paid to brokers or financial advisers, and so are not part of the fund operational expenses. With loaded funds, the marketing fee can be used to pay sales commissions, and the fee can be up to one percent of the assets of the fund. No load mutual funds only charge a maximum of one fourth of one percent, and these fees are not normally used for commissions and incentives.

With loaded funds, there can be a conflict of interest for your broker. They are supposed to advise you in your best interests, but many times brokers may receive commissions from the mutual fund or other investment product as well. Because the broker commission benefits the broker, this may cause them to steer you to loaded funds which pay them higher commissions, but may not be the investment which is best for you. This can cause a conflict between your interests and the broker’s financial gain. There are investigations by the SEC right now into a number of brokers and investment firms who sold loaded funds and did not reveal any conflicts to the investor. With no load funds you do not use a broker but instead make your own investment decisions and invest in the mutual funds directly. It is not possible for there to be a conflict of interest, because there are no broker commissions or load fees paid.

Look closely at a fund prospectus for any fund that claims to be a no load fund, to determine if this fact is really true or just misleading. Some funds do not charge a broker commission if the fund investment is held for a specific length of time, but there may be a fee if you try to get rid of the investment before this time period is up. Look at the mutual fund operating expense ratio, as well as the percentage of the 12b-1 marketing fee. If the marketing fee is more than point two five percent than the fund is not truly one of the no load funds.

When you use loaded funds for your investment needs, you should exercise extreme caution when dealing with any broker. Brokers are supposed to disclose any of their interests which may conflict with yours, but this may not always be done by every broker. Unless you are using a broker who you have known for years and trust explicitly, make sure that you are getting full disclosure of any investments the broker may hold and any commissions the broker may receive from funds. This will help you guarantee that the investment advice is in your best interests, and that your broker does not have a conflict of interest which would cause them to steer you towards investments that enrich them with commissions or sales incentives but are not necessarily in your best interests. No load funds do not involve this problem, because you make the choices instead of a broker or financial adviser.