Index funds are very popular today. This is because of the mutual fund scandal several years ago. A couple state attorneys (including the infamous Spitzer) got together and went after the fund industry because they thought the average investor was getting ripped of. This attracted a lot of medial spotlight and many individuals rethought their investments. This has highlighted the benefits of index funds. When combined with a no load fee structure they can be advantageous to investors in many ways.
Index funds are not like at all like active-managed funds. They do not have portfolio managers and stock analysts trying to make their fund outperform the general market. Instead, the asset manager tries to match the market. This seems counter-intuitive to many people. But the fact remains that very few people outperform the market in the long run. And by saving on fees, the investor is better of.
They used to be available on only the most popular indicies, such as the Dow Industrial Average and the Standard and Poor’s. But the popularity of index funds has grown immensely. There are now indexes for everything imaginable, including global (usually based on the MSCI), bonds and energy stocks. You can build any type of portfolio you want with as much risk and reward built into it as you wish.
What is also great about index funds without a load is that there is already built-in diversity. Every fund manager always proclaims that their fund can withstand a sharp drop in stock values. But whenever there is a crash there are always a lot of funds that are caught with their pants down. Perhaps they were overweight in tech stocks or oil stocks. It turns out they didn’t diversify risks as much as they thought they did. With an index fund you don’t have to worry about this type of human error.
Load charges are typically used to compensate brokers. And they can take a huge bite out of your investment returns. A 5% initial charge to enter a fund does not sound like a lot. But when you take into account compound interest, this can end up costing you tens of thousands of dollars in the end.
A no load index fund is one of the lowest cost investment options availble to the indivual investor. Not only is there not a fee to buy in (as previously mentioned) but the ongoing management fee (expense ratio is a popular term) is relatively very low compared to other funds. This is why many savvy personal investors choose this option.