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Load Funds

The Load vs. No-Load Debate

Mark P. Cussen Mar 03, 2015



Be sure to see our Complete Guide to Mutual Fund Expenses.


What is a Load Fund?


Of course, no-load funds do not assess this fee, and those who sell them receive no commission of any kind (although they may be financially incentivized in other less direct ways). Mutual fund companies that charge sales loads include Davis, American, Franklin-Templeton, MFS, AIM, Putnam and Pioneer Funds. The top no load mutual fund companies include Vanguard, Fidelity, Janus and American Century.

Learn more about what is included in a mutual fund management fee.


A Changing Market


No-load funds were conversely marketed directly and solely by the fund companies themselves to do-it-yourself investors who wished to avoid paying sales charges. But comparisons between the two types of funds had at least one problem at the outset. While no-load proponents usually listed the maximum sales charge assessed by a fund in their arguments, this charge would decrease according to the breakpoint schedule of the fund, and in most cases would completely disappear with any purchase within a single fund family of a million dollars or more. At that point, the fee schedule for load funds became materially identical to their no-load competition (although this factor was of course not terribly relevant for lower-income and net worth fund investors).

But the following decades brought major changes to the platforms and methods of compensation of financial advisors and salespersons that have largely eroded these boundaries. Most major no-load firms now offer platforms through which full-commission brokers can sell their products, and many load fund families have created no or low-load versions of their shares for distribution through traditional no-load channels. The explosion of variable annuity and life insurance products has provided an additional common ground where both types of funds can be used without load distinction, as the mutual fund subaccounts that are used inside these products never charge separate sales loads of any kind and are structured identically inside their respective contracts or policies.

Registered Investment Advisors have also grown tremendously in popularity in the last 20 years, and most RIAs today use platforms that allow them to set their own fee for their money management services and use either type of fund interchangeably in their portfolios without regard to sales charges.

These factors have combined to make it more difficult for analysts to accurately gauge the actual performance of unadorned load and no-load funds over recent periods of time. Previous studies by Morningstar and other sources from the 1990s seemed to indicate that the performance of no-load funds was not as affected by sales of shares during market downturns as the load fund progenitors claimed, and also that the additional fees and charges that come with load funds did not affect long-term performance to the degree that was cited by the no-load camp.

In fact, most studies that have been conducted comparing the two types of funds have concluded that neither type of fund has materially outperformed the other. Needless to say, both camps latched onto this finding to further justify their points of view, with the no-loaders trumpeting that there was therefore no additional value to be had by purchasing load funds, and the load funders responding that investors had nothing to lose by purchasing load funds, which often had considerably longer track records.

Be sure to see our list of the Cheapest Mutual Funds for Every Investment Objective.


The Service Factor


But this type of service is impossible to incorporate into any type of study, because the volume and quantity of service provided by each broker will vary according to both their levels of competency and experience and their operating budgets.


The Bottom Line


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