Definition and Characteristics
The standard sales charge for most load funds is somewhere between 4% and 6% for purchases of up to perhaps $25,000 or $50,000. This rate is usually reduced for larger purchases, and most load funds will waive the sales charge for purchases of $1 million or more. The cost savings for no-load funds is therefore more pronounced for smaller purchases by individual investors.
There is also another class of funds known as load-waived funds that also do not charge a sales load on either the front or back end, but they do charge an annual 12b-1 fee that comes with load funds. These funds therefore tend to have slightly higher annual expenses than no-loads but are still usually much cheaper than load funds.
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History of No-Load Funds
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Perils of No-Load Funds
The lack of a sales charge also does not guarantee that a no-load fund will automatically perform better than a similar fund that comes with a sales charge. In fact, studies conducted by Morningstar in the past have indicated that any difference in returns that comes from the difference in fees that are paid to buy a fund generally disappear after about 5 years. Another limitation that they offer is that many stockbrokers and financial advisors who work on commission are not inclined to use these funds with their clients, as they do not get paid anything for to do so, which means that clients will not be shown funds that might be superior to the load-bearing vehicles that are marketed to them instead.
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However, no-load funds are ideal for more sophisticated investors who are able to search for and analyze funds for themselves and don’t want or need to pay a broker or advisor to work for them.
Major No-Load Funds
T. Rowe Price is another major player in the no-load arena with several outstanding funds. Kiplinger’s also periodically publishes lists of its favorite no-load funds breaking down the top offerings in several different categories. For 2014, the winners for large cap stocks include Dodge & Cox’s Stock Fund DODGX and Fidelity’s New Millennium Fund (FMILX). Akre Focus (AKREX) and Baron Small Cap (BSCFX) are the top two funds in the small- and mid-cap category and Cambiar International Equity (CAMIX) and Dodge & Cox International Stock DODFX head the list of international funds. They list the two best specialty funds as FPA Crescent FPACX and the Merger Fund (MERFX), while the Doubleline Total Return (DLTNX) fund heads the list of bond funds.
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Morningstar also ranks and categorizes virtually every mutual fund in existence in its database. Users can search for funds that meet a wide variety of criteria, such as load vs. no-load, star rating, investment objective, performance history and many more.
The Bottom Line
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