This article is from the Investing Articles: Mutual Funds series.
Over an investing lifetime, these differences become greatly magnified. Assume a person starts investing in no-loads at age 20. For the next five years he invests $100 a month. At the age of 25 he increases it to $250 a month, at 30 to $500 a month, and finally from age 40 to 65 he invests $1,000 a month. At the same 10% annual growth rate he will have amassed $1,421,574 by age 65, or $121,684 more than a comparable load fund investor. This is the real difference the load charge makes.
The comparison presumes growth in a bull market. But there are also bear markets; then the no-load investor doesn't suffer the instantaneous 8.5% commission loss on top of his declining net asset values.Contingent Deferred Sales Charges
Contingent deferred sales charges are paid to salesmen and their selling organizations and can be as much as 5% to 6% for shareholders redeeming in their first year, declining by 1% per year for the next 5 to 6 years.
As discussed by Sheldon Jacobs, editor of the No-Load Fund Investor (Irvington-on-Hudson, NY), exit fees are the charges some management companies levy to switch from one fund under its management to another such fund; and dividend reinvestment fees are a charge that a few fund managers impose for reinvesting the shareholder's dividend.
With such a proliferation of charges, many of which have interlocking or overlapping features, investors are urged to study available fund literature carefully before investing.
In sum, a sales charge -- or lack of it -- is not a factor in achieving performance. The conclusion is inescapable: load or no-load, the basic product is the same. So it's only logical to go no-load and save the commission expense which is essentially a distribution expense and does not contribute to investment performance.
However, having now concluded that no-load investing is the preferred option, the investor needs to go one step further and that is to identify no-load funds that are in fact true, 100% no-load.
In today's mutual fund environment, many funds are calling themselves no-load despite the fact that they have appended a variety of fees and charges which add to the investor's cost and, in fact, detract from investment performance.
It is for the very purpose of identifying those funds that have continued in the traditional true no-load mutual fund mode that the 100% No-Load Mutual Fund Council was formed.
Members of the Council are those management companies and their funds in which investors can become shareholders without fear of discovering that the fund in which they had invested levies various charges which do not benefit investment performance.
By confining one's investment to those funds which are members of
the 100% No-Load Mutual Fund Council, the investor can be assured that
the fund or funds selected impose no sales charges, back end loads,
redemption fees that extend beyond 12 months, or 12b-1
Value of $10,000 Invested at 12% Per Year Compounded, After an Initial Load
Initial Load Duration of Investment 0% 3% 5% 8.5%
1 Year: $11,200 $10,864 $10,640 $10,248 Cost of Load: $0 $336 $560 $952 5 Years: $17,623 $17,094 $16,742 $16,125 Cost of Load: $0 $529 $881 $1,498 10 Years: $31,058 $30,127 $29,505 $28,418 Cost of Load: $0 $931 $1,553 $2,640 20 Years: $96,463 $93,569 $91,640 $88,263 Cost of Load: $0 $2,894 $4,823 $8,200 30 Years: $299,597 $290,609 $284,617 $274,130 Cost of Load: $0 $8,988 $14,980 $25,466