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From: boucher@hsi.UUCP (Keith Boucher)
Newsgroups: net.invest
Subject: Re: A comment on "no-load" mutual funds
Message-ID: <317@hsi.UUCP>
Date: Mon, 24-Feb-86 18:17:33 EST
Article-I.D.: hsi.317
Posted: Mon Feb 24 18:17:33 1986
Date-Received: Wed, 26-Feb-86 21:15:36 EST
References: <1982@jhunix.UUCP>
Organization: Health Systems Int., New Haven, CT.
Lines: 91

> 	I have noticed that there seems to be an overwhelming preference
> for "no-load" mutual funds in this group.  While "no-loads" can be
> beneficial to one who has a short term investment objective of six
> months to a year, there can also be pit-falls.  I would like to alert
> you to some of these "hidden loads".  Pull out your prospectus and look
> for these things:

> 
> 1. Redemption fees:
> 	A % of the total value of your balance is subtracted when you
> 	sell the fund.

Some "no-load" funds do charge a redemption fee but others do not.  Some
base the redemption fee on the total amount including any capital gains or
dividend income while others base it only on the amount originally invested.
Still others reduce the percentage over time until there is none.
Some have a redemption fee to discourage frequent trading.  The redemption
fee goes back to fund.  In any case there are plenty of mutual funds which
have no redemption fee at all.  Twentieth Century Select is an example of
a no load fund which charges no redemption fee although other members of
the Twentieth Century family do.

> 
> 2. Capital Gains:
> 	The distribution of capital gains is up to the discretion of the
> 	manager of the funds.
> 

I do not see any difference between load funds and no load funds with
regards to item 2.  The manager of the funds has the discretion to
distribute capital gains in either case.

> 3. Dividends:
> 	Most "no-load" funds distribute 90% of the dividends to the
> 	shareholders.  Thus, these companies take 10% off of the top.
> 


> 4. Custodial Fees:
> 	Many funds charge a % of the total value of your account each
> 	year.  Therefore, if a company charges 2%, over a ten year period that
> 	means a charge of 20%.  Much more than the 8-8.5% charge of a "loaded"
> 	fund.
> 

Many funds do NOT charge a % of the total value of your account each year.
The only charge is the expense ratio of the total assets of the fund for
management advisory fees and other expenses.  Load funds also have expense
ratios of the total assets of the fund for management advisory fees and
other expenses.  The load goes to salespeople in the form of commissions and
to other marketing expenses.  The management advisor does not get any of the
load.  Some funds that do call themselves no load however do charge a %
of the total value of your account each year.  These funds call themselves
no load but of course really are no different from load funds and can be
worse in some cases.

> 	The bottom line is...  If you want to do the research yourself
> and feel confident in making all of the decisions go ahead.  If you
> aren't sure or don't want to spend the time being your own broker; find
> a broker you trust and his advice will probably center around "loaded"
> funds.
> 
> 				Virginia S. Wesner

It would surprise me if I went to a broker who didn't recommend a load fund.
That is what they are in business to sell.  A First Investors Representative
will of course recommend one of the First Investors Funds.  I am willing
to do my own research and make my own decisions.  I do not have a strong
background in economics or finance but I can read magazines like Money or
Forbes, or newspapers like the Wall Street Journal or Barrons. 

To summarize, there are plenty of "no-load" funds around that charge hidden
fees and therefore are no better that load funds.  BUT, there are plenty
of no-load funds around that do not charge hidden fees.  There are no
fees taken off the investment up front and no redemption fees.  A nominal
amount usually 2% or less is taken from the funds assets each year for
expenses.  Load funds also take a % from their assets each year.

Performance is the deciding factor when deciding where to invest your money.
True no-load funds always do better as a whole than load funds when
measuring total performance.  Money Magazine periodically will publish the
performance ratings of mutual funds (load and no-load) and no-load funds
consistently do better.

I know of no reason whatsoever to invest in a load fund.  All the factors
dictate investing in a true no-load fund will be the superior investment.
The only people who recommend load funds are the people selling them and
of course they are not unbiased.  A percentage of the load that is paid
will go straight into their pocket in the form of commissions.

				Keith Boucher HSI New Haven, CT