Mutual Fund Question

[tokamak]

I don't know a lot about investing, but I've been reading about it lately and I am thinking about buying some Mutual Funds, but I have one question. I think I understand the difference between load and no-load funds, but I don't see why mutual fund companies offer no-load funds. It seems like they wouldn't make any money off of them, if I understand them correctly. What's the 'catch'?

 

[mugs]

http://mutualfunds.about.com/od/noload/

Load fees do the investor absolutely no good. Any mutual fund is really just a pool of money that's managed to accomplish some particular objective such as income or growth, usually following a particular strategy. A load is simply industry jargon for the commission paid to a salesperson who brings in the money. The commission you pay on a load fund goes only to the salesperson or sales organization, not to the fund's manager or investment adviser. Managers and advisors make their money from fees taken out of the fund's assets. Whether investors pay loads or not, they all pay their share of management costs. The fees are typically 0.5 percent to 1 percent of the fund's assets annually. But sometimes they exceed 1.5 percent.

 

[DaveSimmons]

^ good links

All funds charge management fees, so they still make money.

The best funds (like those of vanguard.com, I :heart: VFINX) are both no-load and have very low management fees. Win-win.

 

[FoBoT]

load == evil

no-load == lower costs generally

why should you pay a commission to someone so they can have a fancy car? keep the $ for yourself

 

[Taggart]

never invest in a fund w/ a load, period

nope, don't even think about it...especially when the S&P 500 beats 80% of ALL managed funds in the long run anyway

 

[tokamak]

Well why are people still buying funds with loads then? Are they just ignorant?

<edit> hey my 1000th post! :beer:</edit>

 

[mugs]

Originally posted by: tokamak
Well why are people still buying funds with loads then? Are they just ignorant?

<edit> hey my 1000th post! :beer:</edit>

I don't really know... I've been researching this stuff myself recently, and I can't figure it out...

 

[DaveSimmons]

Originally posted by: tokamak
Well why are people still buying funds with loads then? Are they just ignorant?

Yes.

People don't do their homework and trust companies or financial planners that get big kickbacks for selling you these second-rate funds.

People buy even worse insurance-based investments based on lies from sales-scum that are only pretending to be on their side.

 

[kranky]

Originally posted by: tokamak
Well why are people still buying funds with loads then? Are they just ignorant?

<edit> hey my 1000th post! :beer:</edit>

As DaveSimmons said, mostly those load funds are being sold to people who don't know any better. It's not as though the average person is seeking them out.

It's the difference between buying car insurance from the first guy listed in the Yellow Pages, and searching on your own for the best deal. Some people assume they are all the same.

 

[mugs]

Another useful link: http://www.sec.gov/answers/mffees.htm

 

[andylawcc]

excellent thread...