I bought a second hand book yesterday entitled “Get a Financial Life” by Beth Kobliner. In the first few pages, I learned a couple of interesting finance principles. One principle that caught my attention is the “No Load Mutual Funds“.

I’m particularly interested in this because my current Mutual Fund, PhilEquity, charges a sales load of 3.5%. That means that for every P1,000 that I invest, P35 of that goes to a “commission” to eBiz which is the company that accepts my money on behalf of PhilEquity. That’s P35 less of my money that could have been earning for me.

Investopedia explains No Load Mutual Funds further:

No Load Funds on Investopedia:

What does it Mean? A mutual fund in which shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission at the time of  the fund’s purchase, at the time of its sale, or as a “level-load” for as long as the investor holds the fund.

Investopedia Says… Because there is no transaction cost to purchase a no-load fund, all of the money invested is working for the investor. For example, if you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a front-end load (sales commission) of 5%, the amount actually invested in the fund is only $9,500. If the load is back-ended, when shares of the fund are sold, the $500 sales commission comes out of the proceeds. If the level-load (12b-1 fee) is 1%, your fund balance will be charged $100 annually for as long as you own the fund.

The justification for a load fund is that investors are compensating a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund.

It should be noted that research shows that load funds don’t outperform no-load funds.

No Load Mutual Funds in the Philippines

I did a quick Google Search for “No Load Mutual Funds Philippines” and Sun Life Financial Mutual Funds came out prominently hailing:

Absolutely no sales load

The Prosperity Money Market Fund is the first absolutely no load fund in the Philippines. There are no fees to pay upon investing. This means that your Php 10,000 initial placement is invested wholly into the fund, thereby maximizing its earning potential. Subsequent investments can also be made for as low as Php 5,000.

In addition, the Prosperity Money Market Fund provides immediately access to your investments after seven (7) calendar days. This means you can withdraw your investments after seven (7) days without incurring any exit fees. Other mutual funds may not have any initial sales loads when you invest, but will require you to have at least a two year holding period otherwise your redemption shall be subjected to exit fee. But with the Prosperity Money Market Fund, you do not have to worry this.

Tax-free

Unlike bank products that provide tax breaks on your interest earnings only when you stay with them until your money “matures”, your mutual fund proceeds are not subject to the usual 20% withholding tax.

This tax-free feature of Philippine mutual funds, combined with the liquidity, zero load, and no holding period attributes of the Prosperity Money Market Fund, make it a good alternative to time deposits. That dilemma of not being able to pull out your money because you’ll be “taxed” is no longer a problem with this Fund.

There are obvious financial benefits for investing in a No Load Mutual Fund.

Why would an investor choose a mutual fund with a sales load?

Personally, I chose PhilEquity when I started investing because it was very convenient for me to invest. There were more than three branches that were close to my places of work and residence. Second, PhilEquity was a low-entry mutual fund with minimum initial investment of only Php5,000 and additional investment of only Php1,000.

Sun Life’s Mutual fund requires an initial investment of P10,000 and additional investment of P5,000.

For budding investors with less Php10,000 initial investment or with less than Php5,000 additional investments, they may opt to invest in PhilEquity but will need to bear the sales load.

Conclusion

  • As much as possible, invest in a no-load mutual fund instead of a mutual fund with sales load.
  • Consider also convenience of transaction, taxes and holding periods when comparing mutual funds.
  • If you’re the type, you can even go into the detailed portfolio of the Mutual Fund to find out where the fund managers are putting your money.
  • Choose the mutual fund that fits your needs best

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