Newspaper article St Louis Post-Dispatch (MO)

Loaded Question Which Type of Mutual Fund Is Best?

Newspaper article St Louis Post-Dispatch (MO)

Loaded Question Which Type of Mutual Fund Is Best?

Article excerpt

Through more than 50 years of dramatic growth, the mutual fund industry's longest-running rivalry hasn't changed much.

It divides the business, just about evenly, between "load" funds that impose sales commissions in one form or another, and no-loads that are sold without charge.

To some observers, the idea that loads persist in such large numbers seems incongruous, if not outrageous. In an era of increasing financial sophistication, they say, more fund investors ought to be avoiding all commission charges by going with no-load funds.

"One dictionary definition of a load is `a heavy burden or weight,' " observes Sheldon Jacobs in his annual Handbook for No-Load Fund Investors. "No investor needs such a burden."

Yet no-load funds, by the latest tally of the Investment Company Institute in Washington, account for only about one-third of the assets under management in long-term stock and income funds.

No-loads' share has increased only gradually since 1985, when it stood at 27.5 percent, and 1990, when it was a little less than 29 percent.

Even if you take into account money market funds and short-term municipal bond funds, which are virtually all no-load, the ranks of funds without sales charges still make up only a little more than half of the total.

Evidently, there is still a lot of truth to the old industry maxim that "mutual funds are sold, not bought" - that many investors need or want a broker or salesperson to match them with a product that suits them.

But whenever the relative merits of the two categories are discussed these days, notes Don Phillips, publisher of the Morningstar Mutual Funds reports in Chicago, the load forces seem to find themselves on the defensive.

That's at least partly their own doing, Phillips argues. He says they haven't stated their case effectively, and have played into their rivals' hands with the recent widespread strategy of creating multiple classes of shares.

In a typical instance of such a setup, class A shares continue to carry a front-end sales charge of, say, 5. …

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