No Load Mutual Funds in India

Updated: 30-11-2023 06:38:17 AM

No Load Mutual funds are those mutual funds in which the shares can be sold without any commission or charges. It means that the stock units are distributed by the fund house or investment company itself rather than handing it over to any third party or any intermediary. This saves the fee of the broker and hence the load charges.

What are No Load Mutual Funds – Description

All mutual funds come with some sort of marketing and distribution costs. These operating expenses include some Front End Charges (purchase of units) such as Entry Load, Back End Charges (sale/redemption of units) such as Exit Load and others transaction charges. Entry Load is charged when a consumer invests in a mutual fund scheme and thereby purchases fund units. However, as per SEBI regulations it can’t be levied on any kinds of funds any further and has been banned. Exit Load is charged when an investor exits a mutual fund plan and redeems the units.This is generally done to demotivate the investors from exiting the plan and usually there’s a period after which no Exit Load is applicable.

Asset Management Companies charge a fee for all administrative work of funds known as Expense Ratio. All kinds of entry, exit, transaction and management fee is consolidated into Expense ratio.

No Load MFs do not mean that no fee will be charged as it will include all other kinds of costs other than that of sales commission. It is contrary to Load Funds that charge a commission for purchase and sale of stock units to compensate a secondary party like a broker, investment planner, financial advisor or other such expert professionals. Expense ratio of No Load Funds is generally lower than the Load Funds for absence of sales charges. Therefore, lesser deduction is done from the invested money and returns of the investors.

Advantages of No Load Funds

Cost Effective

Upon redemption, the money you get from a fund includes the principal amount and returns gained (on the basis of relevant interest rates) minus the charges taken by the fund house for managing your scheme. In No Load Funds, the final charges or average expense ratio is low as cost of sales is excluded. Hence, no commission for unit sales gives more returns

Entire Amount Invested

In a No Load Fund, the entire amount of the investor is reinvested by the fund manager in various stocks and thereby you gain returns for the full amount that you have invested

No Dependency on Broker/Agent

You do not need an advisor or an agent but you can do a little research and invest by your choice. You need to be self-reliant and take independent investment decisions

Should you Invest in No Load Funds

One must not presume things either way, that No Load Funds are best as these have lower expense ratios and returns are high, or the other way round that No Load Funds lack investment advice so Load Funds are preferable to invest with some financial guidance. Investment in mutual funds depends upon a number of things, mainly:

Financial Goals
Investment Horizon
Risk Appetite

Apart from these, one must go through taxation rules, exit load and expense ratio. Regular Plans usually have a higher expense ratio than Direct Plans because these involve brokers/advisors. No Load Funds may save money but performance of the funds is what matters when it comes to selection of mutual fund schemes. Many Load Funds have outperformed No Load Funds. Thus, it is recommended to go through the track records of performance before investing in a fund plan and if it suits your investment targets.

Also Read: Direct Versus Regular Funds