Definition:
A no-load mutual fund in which shares are sold without a commission or sales fee. The notion for this is that the shares are allocated directly by the investment company, rather than going through a alternate party. This is different from a load fund, which charges a commission at the time you purchase the fund, at the time of the sale, or as a “level-load” for whatever time frame the investor holds the fund.
More Detail:
On account of there is no transaction fee to buy a no-load fund, all of the funds invested is being applied for the investor. For instance, if you buy $10,000 worth of a no-load mutual fund, the entire $10,000 will be invested into the fund. So if you purchase a load fund that charges a front-end load (sales commission) of 5%, the actual amount invested in the fund is only $9,500. Rather if the load is back-ended, when you sell the funds, the $500 sales commission will come directly from the proceeds. If the level-load (12b-1 fee) is 1%, the fund balance will be charged $100 yearly for as long as you have that fund.
The reason for a load fund is that investors will be compensating a sales intermediary (broker, financial planner, investment advisor, etc.) for their time and expertise in choosing an appropriate fund.
As a note, research shows that load funds do not outperform no-load funds.
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