No Fee Mutual Funds: The Basics

There are many different mutual funds, thousands and thousands of them, in fact. Not only that, but there are tens of kinds of mutual fund companies too. Most of the different sorts of funds differ in what they invest in.

For example, a general fund may invest in anything and an African fund may just invest in African firms or businesses that are dynamic in Africa.

Then there are sector funds that may only invest in modern technology stocks or alternative technology or precious stones. There are also funds that track indexes: for example a NASDAQ 100 tracker fund, which would have in its portfolio all the stocks that are in the NASDAQ Exchange top 100 and in the same ratios.

Lastly, another classification of mutual funds is in its fees: that is, how the fund makes charges for management and profit. These charges are known as ‘loads’. One interesting sort of fund are the so-known as ‘no fee mutual funds’ and one of the best sorts of no fee mutual funds are the ‘index funds’.

Index funds were the first sort of finance tool to bring in the concept of ‘no fee to the benefit of the investor. No fee mutual funds have a tendency to perform better for the investor because they leave more money in the pot from day one, which gives that money the opportunity to increase for the total length of the plan.

One aspect of most no fee funds is that the investor deals directly with the investment company, which means that there are no broker’s fees – no middlemen – to pay. The broker’s fee could be very high, say 10%-20% of a lump sum investment or a whole year of monthly instalments.

This money is shared, often 50-50, between the investment company running the no fee mutual fund and the investor. The investor’s part goes back into his investment pot, which means that it will go on growing for the full length of the plan.

So, how does the investment firm get its income? Well, it has its fee the same as it usually would have; the only one who loses is the broker and the only one who gains is the investor. The investment firm gains nothing immediately, but it does in the long term How?

Well, another aspect of the investment firm’s fees is the annual management charge. This management payment is a proportion of the funds under management, so if your investment pot is bigger, so is their charge.

There are also true no fee mutual funds where all your money is invested from day one – every penny of it with no commission deducted at all. This is all very well, but the investment company has to make money for itself somehow, so you will probably find that percentage rate for the annual management charges is higher.

If you are interested in investing in any kind of mutual fund, take advice first from a professional financial adviser, but do your own research as well.

Keep in mind that a broker does not normally charge a fee for investment advice because the investment company that he sells to you will pay him with your money.

Therefore, if there is no kick-back, he is not likely to recommend them and that includes no fee mutual funds. If you require financial advice, it is best to pay for it by the hour and get good advice – nothing is for nothing and that is especially true in the financial world.

Owen Jones, the author of this article, writes on a range of subjects, but is now involved with No Load Mutual Funds. If you would like to know more, please go to our website at Mutual Funds