How To Invest in Load Funds

When you buy a mutual fund, you can usually choose between a load fund and a no-load fund.  A load fund means that you pay a sales charge.  A no-load fund is a typically a fund without a sales charge.  However, a no-load fund doesn't mean that there aren't any fees.  There are regular annual fees with all mutual funds. 

1. With load funds, there are three types:
   • Class A shares - or a front end load, you pay your sales charge up front.
   • Class B shares - or a back end load, you pay a sales charge when you sell the shares.   The percentage is highest the first year you own the shares, then each year you continue to hold the shares, you sales charge is reduced until it reaches zero.  Your shares are then usually changed to Class A shares at that point.
   • Class C shares - These shares have neither a front-end load nor a back end load.

   At first glance, it would appear that the Class C shares would be the way to go.  However, the annual fees often make Class C shares the least attractive.  The best way to compare funds it to look at annual returns, net of fees.

2. You can purchase a load fund through a broker or directly through the mutual fund company.  You can make investments on a regular basis, such as monthly, or on a one-time basis.  If the dollar amount of the total purchases passes a preset threshold within a certain time frame, usually 13 months, you can get a reduction on your front end sales charge.  If you are planning on making investments that would go over the threshold, you can actually start getting the discount in advance. 
3. You can research funds for free through websites such as Market Watch.  You can also purchase comparisons that go into much more detail at websites like Morningstar.  Make sure you are looking at rate of returns - net of fees.  Don't just look at a one year return.  Purchase a solid mutual fund with a good rate of return over 5 to 10 years.  Find a good fund and plan to stay with it for a while.  However, if you change funds within the same fund family, you can often do it net of any sales charges.  If you change fund families, you will have to pay those charges again.  The best way to explain this is that if you buy a Ford Mustang, and you wish to change to a Ford Thunderbird, you won't have to pay sales charges again.  However, if you buy a Ford Mustang, and you wish to change to a Chevrolet Suburban, you will have to pay sales charges to Chevy as well. 

There is an unusual upside to paying a load. Some research has shown that people who purchase a load fund often do better than people who purchase a no-load fund even if the no-load seems to have a better rate of return.  Apparently, those who purchase a load fund tend to move around less.  Those who purchase a no-load fund often sell after the fund has gone down quite a bit and bail out just before it begins to improve.  They get the worst on the downside and lose the upside.   Load fund buyers tend to stick it out better and although they get the downside swings, like almost everyone, they get the upside gains to balance those out.  For the most part, purchase a good mutual fund and hang on to it.