Why I Like No-Load Mutual Funds

Kurt Brouwer August 25th, 2007

From time to time I get asked why I like mutual funds so much. There’s the long answer and the short one. Today, being Saturday, I only have time for the short one. The answer is:

Mutual funds offer offer a package of advantages that are unmatched. For example,

  • Low minimum investment
  • Immediate diversification
  • Professional management
  • Low cost
  • Security
  • Liquidity
  • Audited track records

For as little as $500 or $1,000, you can invest your money with some of Wall Street’s best minds. When you put your money in a solid mutual fund, you gain immediate diversification because your investment (no matter how large or how small) gets placed into an entire portfolio of stocks, bonds, money market instruments or whatever else the fund invests in. You have the services of professional money managers and you get all that for a modest annual fee. You have the security of getting regular reports from the fund and from being able to track how your fund is doing. Liquidity is easy because you can sell out at any time, at the fund’s net asset value (see below). Finally, mutual funds are audited and so you can analyze them and compare results with confidence that the numbers are accurate.

The term no-load mutual fund can be a bit confusing. No-load mutual funds are those that do not carry a sales charge that goes to a stockbroker or commission-based financial planner. One point to remember though: when you buy a no-load fund through a discount broker, you may incur a modest transaction charge. That does not make it a load, but it’s clear you are paying something for the convenience of buying all your mutual funds in one account.

Net Asset Value:

At the end of each business day, mutual funds have to price all of the securities they hold. The value of these assets is divided by the number of shares outstanding to determine what the net asset value (NAV) or share price should be for that fund on that day. Any shareholders seeking to buy or sell that day would do so at the NAV.

Example: XYZ Fund

Let’s say that on July 31st, XYZ Fund had $500 million in assets. On that day, it also had 35 million shares outstanding. Therefore, the NAV for that day was: $14.29

$500,000,000 divided by 35,000,000 equals $14.29

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