subject: No Load Index Funds And Other Funds [print this page] A mutual fund is an aggregate of stocks that can be divided into smaller shares and sold to investors. Often a mutual fund is indexed, that is, composed of a fixed list of stocks that are representative of the total stock market. Just as often a mutual fund is themed, based on stocks drawn from a particular sector such as energy or commodities.
The fact that index funds are made up of a fixed list of company stocks means that they are not subject to a lot of manager manipulation. This is in contrast to the non-index stocks where managers constantly have to make decisions about how to buy into new companies that represent the theme of the fund and how to allocate assets amongst the current component stocks.
Since index funds require so little active management, they are often called no load index funds. This means that there are no excess manager fees on top of the fund fees. The contrast is the loaded index fund that tacks on the extra manager's fee in the case of the mutual funds. Most market research has shown that there is no real performance difference between average index and non-index funds, leading most people to prefer the no load index funds.
No load funds can be contrasted against other type of high yield mutual funds or investment products.
First, no load index funds must be compared to normal savings, checking and money market accounts. Savings or checking accounts rarely provide the best available interest rates which pushes investors to seek other options. It is almost a certainty that many will come into contact with the money market account which are akin to traditional bank accounts but offer more promising interest.
No load index funds should also be carefully contrasted with certain types of government-backed funds. An under-appreciated pearl in the world of finance is the GNMA mutual fund, often overshadowed by the similar companies Fannie Mae and Freddie Mac. The trio are in charge of real estate borrowing but Ginnie Mae funds are considered the most sensibly run. During the financial disaster caused at least partly by the property disaster of 2007, Freddie Mac and Fannie Mae exhibited crippling losses forcing a declaration from the Treasury to head off investor panic.
Thirdly, no load index funds might be considered as an alternative to low risk government and company bonds. The mundane activities of a government, such as keeping a police force active on the municipal scale, or the public college accepting students on the state level, relies on financing. Temporarily obtaining money at these amounts is accomplished via the auctioning of bonds, essentially IOUs by the government to repay plus interest.
