No-Load Mutual Funds

Mutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Load funds are those funds that charge commission at the time of purchase or redemption. They can be further subdivided into (1) Front-end load funds and (2) Back-end load funds.

Front-end load are fees or expenses recovered by mutual funds against compensation paid to brokers, their distribution and marketing costs. These expenses are generally called as sales loads. Front-end load funds charge commission at the time of purchase. Similar to front end loads there are back end loads. Back-end load funds charge commission at the time of redemption.

no-load funds are those funds that can be purchased without commission. No load funds have several advantages over load funds. Firstly, funds with loads, on average, consistently underperform no-load funds when the load is taken into consideration in performance calculations. Secondly, loads understate the real commission charged because they reduce the total amount being invested. Finally, when a load fund is held over a long time period, the effect of the load, if paid up front, is not diminished because if the money paid for the load had been invested, as in a no-load fund, it would have been compounding over the whole time period.