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From: mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &)
Newsgroups: net.invest
Subject: Re: A comment on "no-load" mutual funds
Message-ID: <12045@ucbvax.BERKELEY.EDU>
Date: Wed, 26-Feb-86 00:38:23 EST
Article-I.D.: ucbvax.12045
Posted: Wed Feb 26 00:38:23 1986
Date-Received: Fri, 28-Feb-86 06:42:13 EST
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Reply-To: mazlack@ernie.berkeley.edu.UUCP (Lawrence J. Mazlack)
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>> 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.

I wouldn't call a fund with a redemption charge a "no-load" fund. I think
that the proper terminology is "back-end load".

>> 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.

Actually, statements 2 & 3 are in conflict.

As it turns out, most funds - load or no-load - distribute at least 90% of
their dividends to avoid paying taxes.  They have to do this to qualify as
something called "A Regulated Investment Company".  If any dividends are
retained, they do not become investment manager profit, but they are added
into the asset base of the fund. 
>
>> 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.

It appears that you are refering to management fees here.  It turns out
that BOTH load and no-load funds charge management fees.  The management fees
are usually set as a maximum of the total assets of the fund.  This percentage
can and does vary from fund to fund. However, it is true that

>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.
>> 
>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. ...........................

I think that if you aren't willing to put in some time, you should just
buy CDs. Trusting brokers is like trusting used car salesmen.  Their interest
is to SELL you things.  They make their money by the commision that they
get from you.  If you loose money, they still get to buy their yacht with
your money. 

>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

>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.

The reason that they do better is that they do not have to overcome the
initial loss. If we use a one year time period and a 8% load, the load
funds will have to be (100/92) better than the no-load because the load
is taken off before the money is invested.  And, as on average, load funds
perform no better than no-load, you lose.

>
>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.
>