Legal Definitions - no-load fund

A no-load fund is a type of investment fund, typically a mutual fund, that does not charge a sales commission or fee when you buy or sell its shares. The term "load" refers to these sales charges, which are essentially a commission paid to a broker or financial advisor for selling the fund. By investing in a no-load fund, investors avoid these upfront or deferred sales fees, meaning more of their invested money goes directly into the fund's assets. While no-load funds don't have sales charges, they still have operating expenses, such as management fees, which are deducted from the fund's assets annually.

• Scenario: Sarah is a new investor looking to put $5,000 into a diversified stock fund for her long-term savings. She researches two similar mutual funds: Fund A, which charges a 5% upfront sales charge, and Fund B, which states it is a no-load fund.

  Explanation: If Sarah chooses Fund A, $250 (5% of $5,000) would be immediately deducted as a sales commission, leaving only $4,750 actually invested. If she chooses Fund B, the entire $5,000 would be invested from day one because it is a no-load fund, meaning no sales charges are applied to her purchase. This illustrates how a no-load fund allows the full investment amount to go directly into the fund.

• Scenario: A company offers its employees a 401(k) retirement plan that includes a selection of investment options, many of which are no-load mutual funds. John, an employee, decides to allocate a portion of his bi-weekly paycheck contributions to one of these no-load bond funds.

  Explanation: Because the bond fund is a no-load option within his 401(k) plan, John does not pay any sales commissions on his regular contributions. Each time money is deducted from his paycheck and invested in the fund, the full amount goes towards purchasing shares, maximizing the growth potential of his retirement savings by avoiding recurring sales charges.

• Scenario: Maria wants to invest in an index fund that tracks the S&P 500. She finds a highly-rated index fund offered directly by a fund company that advertises itself as a "no-load fund provider." Maria opens an account online and purchases shares directly through the company's website without the assistance of a broker.

  Explanation: By purchasing shares directly from a no-load fund provider, Maria bypasses any intermediaries who might charge a sales commission. Her transaction is executed without an additional "load" fee, ensuring that her investment immediately reflects the performance of the underlying assets without being diminished by sales charges.