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Load is defined as the fee or the commission that an investor pays to a mutual fund at the time of purchasing or redeeming the shares of the mutual fund.

If the commission is charged when the investor buys the shares, it is known as a front-end load. On the other hand if the commission is charged when the investors redeems his shares, it is known as a back-end load.

Certain funds apply back-end loads only if the shares are redeemed within a specific time period after being bought.

The argument for applying loads on mutual fund transactions is that these loads will discourage investors from trading frequently in mutual funds. If the investors quickly move in and out of mutual funds, the funds have to maintain a high cash position to meet these redemptions, which in turn decreases the returns of the funds.
Also frequent trading means the expenses of the mutual funds go up.

There are various arguments against load funds:

-The fees that the mutual funds collect as loads are passed on to the fund brokers. The loads do not provide any incentive for the fund manager for better performance of the funds. In other words, a load fund has no reason why its managers should perform better than those of no-load funds.

-In the last few decades, no difference has been seen in the returns of load and no-load funds (if the loads are not considered.) When the loads are considered, the investors of load funds have actually gained less than the investors of no-load funds.

-When a sales person knows that he is going to get a commission from a load fund, he tends to push the load fund more – even when the load funds are performing poorly as compared to no-load funds.

-Loads are understated by mutual funds. If an investor invests $1000 in a fund with 5% front-end load, the actual investment is only $950. Thus his actual load is $50 in $950 investment – a 5.26% load.
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Copyright 2006 Michael Saville

Paying a load is akin to throwing away most or all of the supposed advantage you get from having a salesman choose a fund for you. If it’s true that asset allocation accounts for 95 percent of investment results over long periods of time, then only 5 percent is left over as a reward for having the “right” fund and the “right” manager. But even if a salesman could help you pick that “right” fund, paying him a commission of 5 percent wipes out the benefit.

When you pay a 5 percent load you lose the opportunity to invest 5 percent of your money forever. When you buy a load fund, the money that goes to the salesman goes to work for him, not for you. When you invest in a no-load fund, all your money goes to work for you.

And load percentages are always higher than the quoted figures. For example in a $10,000 investment if $500 goes to the sales organization then $9,500 is invested on your behalf. Funds are allowed to call this a 5 percent commission. In fact, you invested only $9,500, and the $500 load amounts to a commission not of 5 percent but of 5.26 percent on your real investment.

Load amounts are higher than they look. The effect of your commission grows over time. If you avoided a $1,000 commission by investing in a no-load fund, over 25 years you would wind up with nearly $11,000 more if your money compounded at 10 percent. In other words, the $1,000 load would, in effect, be an $11,000 load.

The broker who chooses a fund for you may have a reason to prefer that you buy a poorer-performing fund instead of a top-performing one. Studies show that funds operated by brokerage houses (naturally, they are almost exclusively load funds) have poorer average performance than independent load funds. Yet a broker often earns exotic trips and other perks, in addition to a higher percentage of the commission, for selling house funds. So if you buy a load fund from a broker, at least insist on getting one that is not managed by that brokerage house. You’ll then get more objective guidance-and hopefully better performance.
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Copyright 2006 Michael Saville

Mutual funds are very popular. In fact, they are the one of the most popular investments on the market today. What does that mean in numbers? There are over 10,000 different funds with over $4 trillion in investments!!

Why are they so popular? For some, it is because of their great returns. Others like funds because they are easy to buy and sell. Still others like them because they are diversified and less risky.

A mutual fund raises money from investors to invest in stocks, bonds, and other securities. It is a package made up of several individual investments. When those investments gain or lose value, you gain or lose as well. When they pay dividends, you get a share of them. Mutual funds also offer professional management and diversification. They do much of your investing work for you.

Mutual funds have been around since the 1800′s, but didn’t become what we know today until 1924. Even then, they did not become a household word until the 1990′s, at which time the number of people owning them tripled. A recent survey shows that 88% of all investors have at least some of their money in mutual funds.

A mutual fund is a special type of company that pools together money from many investors and invests it on behalf of the group, in accordance with a stated set of objectives. Mutual funds raise the money by selling shares of the fund to the public, much like any other company can sell stock in itself to the public. Funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds, and money market instruments.

In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund.

Most investors pick mutual funds based on recent fund performance, the suggestion of a friend, and/or the praise bestowed on them by a financial magazine or fund-rating agency. While using these methods can lead one to selecting a quality fund, they can also lead you in the wrong direction and wondering what happened to that “great pick.”
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Most of the people I have met have not planned for their retirement as they say ‘future is unpredictable and we need to live in present’ but my dear friend’s future is the outcome of present, our present will decide our future. When we think of retirement we generally think of old age, a period when you have to give up the job and sit at home doing nothing. Contrary to the fact, most of the retiree lives a very active life. We need to seriously consider out planning towards retirement because once we retiree our income stops coming but our expenses remain as it is and in some cases it rises with the rising inflation.
In this regard mutual fund has turned out to be the right answer for making retirement planning easier and safer. Mutual fund being managed by professionals is a key to effective retirement planning.

Some people like it. Some people don’t but the fact is that retirement is a reality for every working person. Most young people today think cannot think of retirement as reality as they believe in ‘living at present’. However, it is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. This is extremely important, because, unlike developed nations, India does not have a social security net. In India people still depend upon bank savings and fixed deposits for retirement purpose, which is unfortunately inadequate.
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