Load vs. No-Load Funds

Let's first review the mutual fund structures. Load funds charge a commission while no-load funds are commission-free. The structure of load funds can be (1) front-end with the commission varying from 3 to 6.25 percent of the investment, or (2) back-end, also known as redemption, with the commission usually at 3 to 5 percent of asset value when sold. In addition, pratically all load funds charge annual distribution fees, also referred to as 12b-1 fees, which are used to pay for promotional costs. These costs vary from 0.25 to 0.95 percent of annual asset value. Some no-load funds also charge 12b-1 fees, but no-load funds that do not charge 12b-1 fees are known as 100 percent no-load or true no-load.

Is there really that much of a worthwhile difference between load and no-load funds? In the mutual fund illustrations below, assume all funds have equal ability in order to accurately demonstrate the differences in performance.

Assuming a $10,000 investment with a conservative nine percent annual net return rate (after annual fund operating expenses) over three years, the following illustrations compare the differences in total return and Return on Investment (ROI) among three different types of mutual fund structures:

100% no-load (no 12b-1 fees) 5% front-end load with 0.5% per year 12b-1 fees 3% back-end load with 0.5% per year 12b-1 fees (redemption in year 3)

Total Return Comparison

start Year 1 Year2 Year 3
100% no load $10000 $10900 $11881 $12950
5% Front-end load $9500 $10303 $11374 $12374
3% Back-end load $10000 $10845 $11762 $12374>

Cumulative ROI Comparison

Year 1 Year 2 Year 3
100% no-load 9% 18.8% 29.5%
5% Front-end load 3% 11.7% 21.2%
3% Back-end load 8.4% 17.6% 23.7%

Naturally, you will select no-load funds from amongst comparable load and no-load funds. ( Asset managers will seek load funds.)