No Load Index Funds And Other Funds
The way to describe mutual funds is that they are portfolios or aggregates of individual stocks. When personal investors buy a share of a mutual fund, they are usually buying into many fractions of different companies. A common type of mutual fund is the index fund, defined as one whose component stocks are just ones drawn from some list (perhaps the NASDAQ member companies). Another common type is the non-index fund that follows some theme such as internet businesses or retail clothing.
Since index funds adhere to a list of stocks that rarely change (perhaps when the company falls below a certain capitalization and gets delisted), they do not require much activity from the managers. But themed funds do not adhere to any fixed list, and are instead themed in a way that is determined by the managers. Therefore theme funds are subject to many decisions on how the fund allocates to different companies, which companies to include, etc.
As one might imagine, because index funds are not as actively managed, they incur less fees. These are known as no load index funds. Similarly, because non-index funds require a lot of time from the manager, they end up incurring a management fee that is usually in addition to other fund fees. Interesting, research has shown that the active management does not seem to improve the performance of a fund when compared to the unmanaged index funds.
No load funds can be contrasted against other type of high yield mutual funds or investment products.
A no load index fund should be compared first against mundane checking, savings and money market accounts. Checking and savings accounts rarely provide the highest possible interest rates encouraging investors to turn elsewhere. It is almost a certainty that investors will come into contact with the money market account which are similar to regular bank accounts but offer more promising interest rates.
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.
Finally, no load index funds should be compared to safe government bonds. The day-to-day activities of a government, for example running a police force on the municipal scale, or the city college system running well on the county level, relies upon loaned money. Such a large scale borrowing has no hope of being done through a typical bank, but must be self-financed via the sale of bonds which are promises of repayment.
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