Many investors turn to mutual funds because thecan make it fairly easy to see solid returns while maintaining a degree of diversity.
Unfortunately, there are mutual funds that come with extra charges, called. These can be costly, eroding your real returns. Choosing no-load mutual funds can be one way to reduce the fees that you pay.
However, even if you invest in no-load funds, you might not realize what you are getting into. Even no-load funds come with secrets that can cost you. Before you invest in a no-load mutual fund, here are eight things you should know:
1. You Might Have To Ask for A No-Load Fund
If you are working with a no-load fund. Although some automatically look for a no-load fund for you, some of them are paid on , and are more interested in getting a bit of a bump with that ., you might have to ask for a
2. There Are Still Costs With No-Load Funds
'No 12b-1 fee.' doesn't 'no cost.' All mutual funds have expense ratios. The first time I invested in a no-load fund, I ended up with a 2% annual , which is pretty high. (I didn't know any better!) On top of that, there might be other fees, like the
3. 'No Load' Almost Always Means 'Actively Managed'
It's not enough to just ask for a no-load mutual fund if you are looking for something low-cost. In fact, what you are probably looking for is an index fund. Index funds, almost by , are no-load, and they have low expense ratios.
4. You're Better Off Going To The Source
5. Fund Managers Follow Strict Guidelines
It's important to understand that any actively managed asset allocation., including a no-load mutual , comes with strict guidelines. are managed according to rules that specify what types of assets are included. Even with open-end , at least 80 percent of the assets have to follow particular guidelines. For example, if you've invested in an energy sector and the energy sector tanks, there's not much you can do other than abandon the -- even the manager can't change the
6. No-Load Funds Don't Trade Like Stocks
7. Taxes Are Different On No-Load Funds
A fund manager might have added more shares of Company X to thelast . This , the manager sells those shares at a . The are taxed, and those are passed on to the shareholders. For those who invested in the last , it's not so bad; they realized a . But if you bought shares of the mutual fund last month, just before the trade was made, you probably didn't realize the . However, as a shareholder, you are still taxed on the . This makes many mutual funds -- even no-load funds -- inefficient come time.
8. You Might Be Better Off With ETFs
A no-load mutual fund is better than one with a. However, an index fund is often better than any actively managed . And if you want to avoid some of the inefficiencies that can result from mutual fund trading, an ETF might be your best bet altogether. You get the effect of the , but the ETF is traded and taxed like a .
TheAnswer: Just because a mutual fund is no-load doesn't mean that it comes without cost or that it's right for your portfolio. You could actually come out ahead by purchasing from discount brokers that with no transaction fees and low expense ratios.