How to Buy No Load Mutual Funds
When you invest money in a mutual fund, the number of shares you get for your money depends on two factors. One is the price per share, which is determined by dividing the net asset value (NAV) of the fund by the number of shares outstanding. In addition, some funds charge loads (sales commissions) that reduce how much of your money goes into buying share. It is possible to avoid these charges if you learn how to identify and select no-load mutual funds.
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Instructions
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Understand the difference between load and no-load mutual funds. Mutual funds can charge two types of fees. All funds assess fees to cover salaries, administrative expenses and other operating costs. In addition, some funds deduct sales fees or loads, either on the front end when you invest or on the back end when you liquidate your shares in a mutual fund. A fee (called the 12b-1 fee) of as much as 1 percent of your investment per year may also be assessed. No-load funds do not charge sales fees. Some do have a smaller 12b-1 fee (limited to 0.25 percent by U.S. Securities and Exchange Commission regulations) that covers transaction costs and is lumped in with operating expenses in the expense ratio. The expense ratio is the percentage of the funds assets that go to cover operating costs each year.
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Locate no-load mutual funds. This is easy to do because many financial information services publish lists of mutual funds of all types online. Morningstar.com not only lists many no-load funds but also provides analysis and ratings (see link in Resources). Fidelity Investments is a fund provider and lists about 4,000 funds along with links to download the funds' prospectuses for further research (see link in Resources).
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Obtain a copy of the prospectus of the no-load mutual funds you are considering as investments. Do not assume a no-load fund is automatically the better investment. Some load funds have outstanding performance that justifies the added fees. However, research by Craig Israelsen shows that, on average, investors get better returns from no-load funds (see link to "The Lowdown on No-Load Mutual Funds" link below). Before you commit to any mutual fund, read the prospectus. The SEC requires funds to include their performance for the past 5 to 10 years in the prospectus along with their fee structure (including all loads and 12b-1 fees) and management track records. Do not neglect to review independent analysis by publications like the "Wall Street Journal," "Morningstar" or "Kiplinger's Magazine."
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Follow the instructions in the prospectus to open an account with the mutual fund provider and start investing. In many cases, you can do this online and use electronic funds transfer to make your investments. The amount of the initial investment required varies but $1,000 was typical as of 2009. You will need to provide information comparable to what a bank requires to open a checking or savings account: name, identification and Social Security number, along with employment and contact information.
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