No-Load Fund Performance
To enhance fund distribution, mutual fund companies use loads and servicing fees to reward financial intermediaries for recommending funds. No-load funds avoid these fees because the investor either selects the fund independently or, if an investment professional is involved, she is compensated outside of the fund structure.
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Understanding Fund Fees
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A fund's prospectus contains expense information such as the fund load structure and the components of the expense ratio. The components include the management fee, distribution and service (12b-1) fees and other operating expenses. In order to be considered a no-load fund, a fund must have no load and a 12b-1 fee of 0.25 percent or less.
The Impact of Load on Fund Performance
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Funds are required to report performance at both net asset value, meaning fund assets net of expenses, and load-adjusted, meaning net of maximum loads, fees and charges. For no-load funds, the NAV and load-adjusted performances will be identical. All other things being equal, a no-load fund will have higher performance than a load fund, because the no-load fund has lower fees.
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Where to Find No-Load Funds
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Many mutual fund databases provide the ability to select no-load as a search criterion. For example, Morningstar's fund screener allows you to select "no-load funds only." Similarly, fund supermarkets such as Fidelity and Schwab provide such screens for the funds available through their custodial networks.
Expert Insight
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When you use a fund rating service to evaluate fund performance, it's important to understand how the database derives its rankings. For example, Lipper ranks returns at NAV, in essence treating no-load and load funds equally, while Morningstar's star ratings penalize funds with loads.
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