3 Things You Should Know About No Load Mutual Funds

So you've gotten past the basics of mutual funds and now you've come to the conclusion that no-load mutual funds are a good choice. Before taking advice from a financial adviser, here are some of the most important things to know about no-load mutual funds that could save you from making some costly mistakes.

Advisers Won't Often Suggest No-Load Mutual Funds

As a beginning investor in no-load mutual funds, a financial adviser is usually your first contact. But no-load mutual funds may not be on the top of their list to promote to you. Mostly this is because these advisers are just like you- they're trying to make a living for themselves. No-load mutual funds bring in less commission dollars for them than load mutual funds. What this means for you is that while no-load mutual funds might be a better choice for your long term investment, it's a better choice for your adviser to push load mutual funds. Simply put, the fees you pay for a load mutual fund go right back into the managing company and thus into your adviser's paycheck. If you go through an adviser, stay firm on your choice to invest in no-load mutual funds as they might try to persuade you otherwise.

Go Straight To the Source For Your No-Load Mutual Funds

Once you've decided to actually purchase no-load mutual funds, you will have two main options for purchasing them. You can contact the mutual fund companies directly or use a virtual "supermarket" hosted by large investment companies like Schwab and Fidelity that make it convenient to purchase no-load mutual funds. However, convenience will cost you money. To avoid this, contact the company who manages the no-load mutual funds that you're interested in and request a prospectus. You'll find a fee table in this prospectus that details what other expenses will be tacked on to your no-load mutual funds. Generally these fees for no-load mutual funds will fall under two categories- Shareholder Fees and Annual Fund Operating Expenses. This information will save you money in the long run as you begin investing in no-load mutual funds.

Even No-Load Mutual Funds Have Costs

The worst of these fees that no-load mutual funds can take on that you should be aware of is the 12b-1 fee. Instead of getting confused by this terminology, let's call the 12b-1 the "Let's Get Bigger" fee. Call it this because it's money that you're paying to help the mutual fund administrator with their marketing costs to attract more investors. How does this affect your no-load mutual fund? Well, by letting the amount of shareholders grow, you're also making it more difficult for the fund managers to do their job, just like one of those guys who can spin plates on sticks. Sure it's easy to manage 3 spinning plates (or companies in your no-load mutual funds) but when you start to keep up with 15 of them, some are bound to fall to the ground and shatter. Do you really want your no-load mutual funds to do this? Fortunately no-load mutual funds without this "Let's Get Bigger" fee do exist and mutual fund managers are obligated to disclose this information.

Making the jump to start investing in no-load mutual funds is a big one. Letting financial advisers and large investment companies dictate your investment choices can lead to you paying unnecessary fees. By doing a little research on no-load mutual funds before investing, you can be sure you'll have a solid investment for the future.