Mutual funds incur some expenses during the trading process, and especially during the process of buying the investment. The management charges a commission for buying the shares on behalf of the investor. These is what is referred to as the load on an investment. The charges differ according to Net Asset Value of any particular type of investment. However, some mutual funds are no-load investments, meaning that they do not incur such expenses.
In that regard, whatever amount of money an investor gives to an investment company goes directly into buying shares for him. Before buying any shares an investor should establish whether an investment is a load or no load investment. This can easily be determined by having a look at the prospectus of that particular investment. The load on an investment comes in different forms which include front-ended, back-ended or both options.
A front-end load is a direct deduction from the investment. For example, if an investor invests $2000 in a pool that has a load of 5%, then $100 will go towards catering for the expenses involved. This leaves the investor with only $1900 with which he can buy shares. This means that the returns will most definitely be lower than what he would have got if he had invested the full amount. The impact felt is worse if the investment is a short-term one.
No load mutual funds go along way in ensuring that an investor gets his full return on the whole amount of money that he gives out to buy shares. Load investments have to perform for a number of years before an investor can realize the kind of returns he would otherwise realize from a no-load investment. Since the no-load investments allows an investor to start off without any expenses, the probability of realizing huge returns is high.
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