Mutual fund load fees are fees that you pay to invest in mutual funds. Of course all mutual funds have management fees that are assessed on your investment each year (read about 12-b1 fees). Load fees are a different fee, though, one that you pay just for investing in a fund.
Mutual Fund Loads
When you buy a mutual fund, you usually pay no fee if you pick a no-load fund. A no-load mutual fund is a mutual fund that only charges fees for management and marketing in some cases.
Here’s how mutual fund load fees work: you invest in a mutual fund and then the fee is deducted from how much you invest.
Suppose you invest $10,000 into a mutual fund with a 3% mutual fund sales load. When you receive your first account statement after your initial deposit, your mutual fund balance will be $9,700. The $300 fee went to pay off the person who sold the mutual fund to you. In some cases, loads also go to the mutual fund company.
The long term cost of a mutual fund is very high. If your mutual fund earns 8% per year for 40 years, then the $300 load that you paid will have cost you more than $6000 in future dollars. This means that the growth you could have had on the money that you paid in the fee was monstrous!
Index funds are better than mutual funds
Index funds do not have typical mutual fund fee arrangements. You pay only for the management fee, which is quite low because there is no active manager of the fund. Always buy index funds if you can, because the fee difference will increase the returns on your investment.
Remember, fees are the killer of fund returns. The lower you can get your fees, the higher your returns will be over the very long term. Check out my post on how to compare fund fees for free.
