A no-load mutual fund is a specific type of mutual fund and is discussed below after I give a brief description of a mutual fund. A mutual fund is merely a pool of money gathered from hundreds or even thousands of investors like you. Many people believe that a mutual fund may be one of the best investments that you can make. The manager of the mutual fund re-invests the collective pool of monies into stocks, bonds, and other securities. Usually, it takes a thousand dollars or more to open a mutual fund investment. Any profits, gains, and dividends from the mutual fund investments are divided pro-rata among all of the mutual fund investors or shareholders. An advisory fee is paid to the manager who makes the investment decisions.
The nice thing about a mutual fund is that you don’t have to research and decide what individual companies or securities to invest in, nor try to determine when to sell the securities in the fund’s portfolio. The mutual fund manager does that for you. Additionally, your risk is diversified among many investment securities. A mutual fund is highly regulated by the federal government. Warning: Like any other investment you can lose money that you invest.
The most common type of mutual fund is called a no-load mutual fund. This type of fund does not have a “load” or commission charged to you when you purchase shares of the no-load fund. All of your money is invested directly into the fund’s investment pool. You can purchase shares of a no-load fund directly from the mutual fund company. Another type of mutual fund is a load fund, which is sold by brokers or advisers who advise the investor about what mutual funds to buy and sell. They receive a portion of your investment as a commission for acting as a salesperson. So, with load funds not all of your investment is invested directly into the mutual fund portfolio of securities.
I suggest that you read the fund prospectus of a no-load mutual fund before investing, which you can obtain directly from the mutual fund company. The prospectus is a required disclosure document that describes a lot of information about the mutual fund, such as its investment objective and fees. You may also want to ask for a copy of the fund’s “Statement of Additional Information” which few people ever ask for. This is a longer document than the prospectus but has much more detailed information about the mutual fund, such as a description of the various types of securities in which the fund may invest.
One last comment, make sure you compare the expense ratio of the mutual fund as disclosed in the prospectus and compare it with other funds with a similar investment objective. What might seem like a small difference in expenses can really add up over 20-30 years and have a significant effect on your investment return.
