No-Load Fund

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DEFINITION of 'No-Load Fund'

A mutual fund in which shares are sold without a commission or sales charge. The reason for this is that 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 you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy 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 load is back-ended, when shares of the fund are sold, the $500 sales commission comes out of the proceeds. If the level-load (12b-1 fee) is 1%, your fund balance will be charged $100 annually for as long as you own the fund.

The justification for a load fund is that investors are compensating a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund.

It should be noted that research shows that load funds don't outperform no-load funds.

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