Interesting fact about load funds

[disneysteve]

I was just reading Kiplinger's and was glancing at the chart of the 20 largest stock mutual funds. They publish that chart, with performance data, in every issue. But I just noticed something for the first time.

13 of the 20 largest stock mutual funds are load funds.

We often talk about why it is generally best to avoid load funds. Every article in every personal finance publication always says the same thing. And yet, there it is. 65% of the largest funds have loads.

Why is that?

[sweeps]

Mutual fund salesmen are good at what they do. (And they're highly motivated.)

[disneysteve]

I was wondering if it had something to do with institutional purchases, more so than individual ones.

[humandraydel]

There are a LOT of funds that will waive the load if the fund is bought in a 401k. So, I would say that not all of the assets in those funds were charged the load.

[disneysteve]

There are a LOT of funds that will waive the load if the fund is bought in a 401k. So, I would say that not all of the assets in those funds were charged the load.

Exactly. That's the kind of thing I was wondering about. My wife owns 2 load funds in her 403b but didn't pay the load.

[jIM_Ohio]

A few points about load funds-

people investing in them aren't starting with $50/month contributions. They may see initial contributions in 6 figure range- the playing field is not the same.

people investing in a load fund would need to tell their advisor to sell shares, and more than likely the holdings are NOT tax advantaged. So the advisor could advise against selling.

the 401k point is also a good one- if that is the fund available, then the people in the plan might not have a better choice.

[kv968]

We often talk about why it is generally best to avoid load funds. Every article in every personal finance publication always says the same thing. And yet, there it is. 65% of the largest funds have loads.

Why is that?

When they list the load fund, they're also including all of the other classes of the fund which may not have loads (ie. Class B, C, other classes in 401k's, etc...)

[kv968]

A few points about load funds-

people investing in them aren't starting with $50/month contributions. They may see initial contributions in 6 figure range- the playing field is not the same.

I disagree, I think a lot of people investing in those funds are just "average Joes" investing a little here and a little there. They just don't know how to go about investing on their own so they go to an advisor and that's what they're steered into.

[Scanner]

My beef about loaded funds has always been they seem to carry higher expense ratios, in addition to the load.

[Broken Arrow]

My current 401k brokerage charges an "effective front load of up to 5.75%" and an expense ratio of 1.25%. I can buy the argument that the loads are for value-added service somehow, although I have not personally gotten anything more out of it from my brokerage. In fact, they seemed rather evasive when I asked for more details, especially regarding the load. Granted, that's based on my one inquiry with them.

Still, I suppose my point then is that not all brokerages are created equal.

I most definitely plan on rolling over my 401k when I leave my current job... but hopefully not for another few years when I am fully vested and hopefully have the extra money to do a Roth conversion as well.

[Anniebird]

I've read that often 401ks are really bad when it comes to fees. Some fees are hidden and not even the plan administrator knows about them. I can't post links yet, but you can google

401k "hidden charges'

As far as I know, loads are just a commission to the broker.

[Scanner]

Maybe the reason that loaded funds are the largest is because the wealthiest seek financial advise who will sell them loaded funds, not to mention the other clients within the financial advising industry.