Tips for Avoiding a Loaded Mutual Fund

Loaded mutual funds are one of the worst investment ideas available. Essentially a loaded mutual fund is one that requires that you pay a commission to be part of the fund. You either have a constant load, which is a commission that is charged each year that you are part of the fund, the front load, which is a commission applied at the beginning, generally before you can enter the fund, paid up front and finally the back end load, which is the fee paid after you get out of the fund.

Having a loaded mutual fund puts you at a huge disadvantage as it requires you to have to make substantially more to make as much as you would have if you had an unloaded fund. This means that in order for these types of funds to outperform funds without a commission, they would have to significantly grow in order to justify an investment in one. This however, would have to be a fairly significant gain in order to make up the difference in a relatively meaningful time.

Avoiding a loaded mutual fund is really easy as long as you are willing to do your homework. Before getting involved in a fund, ALWAYS make sure that you do your research. Find out what type of fund it is, find out what types of returns they normally have, and read reports by those not attached to the fund to get a better overall picture of what you are investing in.

There is no good reason that I can think of for a loaded fund and anyone selling investments should realize this as well. They pay better for those selling them, which is why they pitch them, but ultimately they are doing more damage to your portfolio than they are going to do good.