No load mutual funds are mutual funds whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale.

Since there is no cost for you to enter a no-load fund, all of your money is working for you. If you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a commission of 5% upon purchase, the amount actually invested in the fund is $9,500. If both funds return 10%, the no-load fund would have grown to $11,000 while the loaded fund only rose to $10,450.

The major idea behind a load fund is that you will make up what you paid in commissions with the solid returns that the managers will provide. However, most studies show that loads don't outperform no-loads.

Most load mutual funds are sold through brokerage houses, financial planners, and people known as "Registered Representatives." With very few exceptions, most of these people operate on the basis of selling as many fund shares as possible. Their commissions are collected up front, as a back end charge, or both. Whether you make money or lose it isn't their primary concern. What matters most to these folks is how often you buy (and generate new commissions for them).

No load funds have traditionally been marketed directly by the mutual fund companies themselves. But today, more and more funds are being offered through discount houses like Fidelity, Schwab, and a host of others. The advantage to this is that you have an unlimited choice of mutual funds in one place. You don't have to open a separate account for each mutual fund family that you purchase.

Most fee based investment advisors have independent relationships with the major discount firms. They're able to offer clients just about any no load mutual fund that is available. They receive no commissions from the firm and only get paid by the client according to a pre-determined fee arrangement. Under this type of arrangement, there's no hidden agenda to try to sell you a particular mutual fund in order to earn a larger commission.

It is best to stick with no-load or low-load funds, but they are becoming more difficult to distinguish from heavily loaded funds. The use of high front-end loads has declined, and funds are now turning to other kinds of charges. Some mutual funds sold by brokerage firms, for example, have lowered their front-end loads to 5%, and others have introduced back-end loads (deferred sales charges), which are sales commissions paid when exiting the fund. In both instances, the load is often accompanied by annual charges.

On the other hand, some no-load funds have found that to compete, they must market themselves much more aggressively. To do so, they have introduced charges of their own.

The result has been the introduction of low loads, redemption fees, and annual charges. Low loads--up to 3%--are sometimes added instead of the annual charges. In addition, some funds have instituted a charge for investing or withdrawing money.

Redemption fees work like back-end loads: You pay a percentage of the value of your fund when you get out. Loads are on the amount you have invested, while redemption fees are calculated against the value of your fund assets. Some funds have sliding scale redemption fees, so that the longer you remain invested, the lower the charge when you leave. Some funds use redemption fees to discourage short-term trading, a policy that is designed to protect longer-term investors. These funds usually have redemption fees that disappear after six months.

Probably the most confusing charge is the annual charge, the 12b-1 plan. The adoption of a 12b-1 plan by a fund permits the adviser to use fund assets to pay for distribution costs, including advertising, distribution of fund literature such as prospectuses and annual reports, and sales commissions paid to brokers. Some funds use 12b-1 plans as masked load charges: They levy very high rates on the fund and use the money to pay brokers to sell the fund. Since the charge is annual and based on the value of the investment, this can result in a total cost to a long-term investor that exceeds a high up-front sales load. A fee table is required in all prospectuses to clarify the impact of a 12b-1 plan and other charges.

The fee table makes the comparison of total expenses among funds easier. Selecting a fund based solely on expenses, including loads and charges, will not give you optimal results, but avoiding funds with high expenses and unnecessary charges is important for long-term performance.