What is a 'No-Load Fund'
A no-load fund is a mutual fund in which shares are sold without a commission or sales charge. This occurs because the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission at the time of the fund's purchase, at the time of its sale, or as a "level-load" for as long as the investor holds the fund.
BREAKING DOWN 'No-Load Fund'Because there is no transaction cost to purchase a no-load fund, all of the money invested is working for the investor. For example, if an investor purchases $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if the person buys a load fund that charges a front-end load (sales commission) of 5%, the amount actually invested in the fund is only $9,500. If the fund holds a contingent deferred sales charge (CDSC), the $500 sales commission, which declines annually, comes out of the proceeds when shares of the fund are sold. If the level-load (12b-1 fee) is 1%, the fund balance is charged $100 annually for as long as the investor owns the fund.
The justification for a load fund is that investors are compensating a sales intermediary such as a broker, financial planner, investment advisor or other professional for his time and expertise in selecting an appropriate fund. Research shows, however, that load funds don't outperform no-load funds.
The largest purveyor of no-load mutual funds is The Vanguard Group. Located in Malvern, Pennsylvania, and managing $3 trillion in global assets, the company offers investors 127 mutual funds from which to choose. The do-it-yourself investor who eschews financial advisors and their commission structures can select from a variety of asset classes, ranging from ultra-conservative money market funds to riskier portfolios such as the Explorer fund. The Explorer fund invests in small-cap stocks that have annually returned 8.94% since inception on Dec. 11, 1967, through June 30, 2016.
T. Rowe Price
T. Rowe Price was founded in 1937 and offers one of the oldest no-load mutual funds in existence. Beginning operations in 1939, the company’s Balanced Fund charges no up-front or back-end sales charges while maintaining an expense ratio of 0.68% as of Dec. 31, 2015. Receiving an overall four-star rating from Morningstar, the fund appeals to moderate investors who avoid sales loads and seek to put every dollar invested to work. Through the life of the portfolio, the $4 billion Balanced Fund has averaged an annual return of 9.50%.