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Understand the difference between load and no-load mutual funds. Mutual funds can charge two types of fees. All funds assess fees to cover salaries, administrative expenses and other operating costs. In addition, some funds deduct sales fees or loads, either on the front end when you invest or on the back end when you liquidate your shares in a mutual fund. A fee (called the 12b-1 fee) of as much as 1 percent of your investment per year may also be assessed. No-load funds do not charge sales fees. Some do have a smaller 12b-1 fee (limited to 0.25 percent by U.S. Securities and Exchange Commission regulations) that covers transaction costs and is lumped in with operating expenses in the expense ratio. The expense ratio is the percentage of the funds assets that go to cover operating costs each year.

Obtain a copy of the prospectus of the no-load mutual funds you are considering as investments. Do not assume a no-load fund is automatically the better investment. Some load funds have outstanding performance that justifies the added fees. However, research by Craig Israelsen shows that, on average, investors get better returns from no-load funds (see link to The Lowdown on No-Load Mutual Funds link below). Before you commit to any mutual fund, read the prospectus. The SEC requires funds to include their performance for the past 5 to 10 years in the prospectus along with their fee structure (including all loads and 12b-1 fees) and management track records. Do not neglect to review independent analysis by publications like the Wall Street Journal, Morningstar or Kiplinger’s Magazine.

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