No Load Index Funds

Money market and securities market are two important markets that help a nation's economy to raise capital and operating funds. These markets are also used to make collective investment schemes such as mutual funds or no load funds.

The best way to understand any financial concept is to take into consideration the simple logic upon which it is based. Here, a no load index fund is a type of collective investment, where a group of people pool in money that is to be invested in the stock market. That money is handed over to a manager (in most of the cases a financial institute), who manages the pool by investing it into appropriate avenues of the stock and money markets. The investment is done in such a manner that it goes into proper channels, so that the returns over investment ratio is high. The manager gets a high commission for his financial management and financial planning.

What is an Index Fund?

The term index fund is basically derived from the investors habit of passive investment that is based upon the tracking of a particular index such as S&P 500 index. In simple terms, an index fund is a mutual fund that is framed on such a platform that it tracks a market index. The word 'tracks', imply that the investment by the portfolio manager is done according to the particular market index. This replication is often done irrespective to market conditions and forecasts by experts. This kind of portfolio management is known as passive fund management.

The advantages of using the index fund is that there is lesser risk as compared to other funds, the index fund provides a broader market exposure and the entire investment operation costs lesser than most of the mutual funds.

What is the Meaning of No Load?

The concept of no load is applicable for almost all mutual funds. When a person invests his money into the services of a mutual fund scheme or program, there are several fees that providers of mutual fund, have to pay to several brokers and agents to sell and purchase certain amount of stock. These fees can be a one time charge or a periodic charge. Thus a load basically consists of a sales charge or commission. The drawback of a loaded fund is that the total money that is invested in such funds is not invested in the stock market. A percent of it is segregated for such 'loads' and the remaining is invested.

There can be two possible classes of no load index funds, namely, the scenario where the load cost is periodically paid by the investor to the manager of mutual funds. The second scenario is where the load charges are deducted from the returns of the investment. In short, the entire amount that is paid by the investor gets invested and the load is paid through a different mode. In a no load funds list, you will also discover that there are also some schemes that do not have any load at all, direct or indirect. In such a scenario, the low operational charges are incurred by the investment manager (provider of mutual funds).

Ideally the best index funds are the ones that follow and track one singular reliable economic and market index. Making a decision about which no load index fund to invest in can be really difficult. The ideal way to choose the best one, is to have a look at which index is followed by the mutual fund.