Why would you want to buy a loaded mutual fund?

After doing some research, it is clear that a non-loaded mutual fund in the end, would end you up with a lot less in expense fees than a loaded mutual fund. So can someone tell me why I would buy a loaded mutual fund over a nonloaded?

If you're all going to tell me I wouldn't, can you please tell me then why they exist?

There is a legitimate reason for them. Not everyone is willing to spend the time to learn how to invest. They prefer to go to a financial advisor for advice. Financial advisors, of course, have to charge for their services. They are frequently compensated by the commissions (or "loads") that customers pay for these funds.

That being said, you have to be cautious when selecting a financial advisor who accepts commissions. An unscrupulous person may sell you the fund with the highest profit to him/her instead of the best one for you.

Do the loads reduce your returns? Absolutely, yes. However, they may not reduce them as badly as making bad investment decisions.

For those of us who are willing and able to learn how to select funds, paying loads makes no sense.

You wouldn't. You want true "no load" mutual funds such as with T. Rowe Price. Remember, fees and taxes eat away at your savings. You especially want funds that have under 1% expense ratios.

It would depend on the individual fund itself. As a generalization, no-load funds are better because expenses are lower. But, if a load fund will outperform a no-load (as well as the additional costs), then the load fund would be a better choice. It really depends on fund performance.

What if the loaded mutual fund had a much higher rate of return than the no load fund?

Return - Load = Net Return

Loaded Fund 15% - 5% = 10%

No Load Fund 8% - 0% = 8%

What return would you prefer?

Loaded funds "existed" before no-load funds or no-transaction-fee (NTF) funds via brokers.

It is a kind of legacy and people who started out with up front, etc. load funds which performed well decided to keep them. If you are interested in good performing low cost funds check out index funds. Also Vanguard funds have a strong reputation of having very low expense ratios some as low as 0.03%!

My $0.02

Load funds are for suckers. You may or may not make out as no one can predict the future. Paying a 5% for what is basically a commission is foolish. Go with Vanguard and save the fees.

There is no doubt that a low internal fee "no load" Mutual Fund is usually the best way to go.

So why pay fees;
Some people just don't get "Asset Allocation", differences between funds etc. Many of them think they can't learn it (in my mind an expensive mistake).

So..... in effect they are not comfortable handing their own money (80% of Mutual Fund investors). Wrong decision, most likely. But it is what it is. For this "service" people need to be paid. Therefore.... loaded funds.

About the only reason to go with a full load mutual fund is if the manager or management team have demonstrated, over time, to be consistently above average in doing their jobs.

It's for people who need financial advisors because they don't know any better. Financial advisors need a commision and either don't explain to their clients that no-load funds exist, or claim that their loaded funds are better. Everyone wants a piece of your money.

Loaded funds are for suckers.

Anyone can buy the SPY (S&P 500) which will beat 80% of mutual funds over the long haul AND only has a 0.10 expense fee. Yes SPY shares are expensive ~150 but even if you can just buy 7 shares at a time your cost to buy is less then 1% using 10$ as trade costs.

To compensate the financial advisor. There's nothing inherently wrong with this and the advisor needs to be compensated for putting together the financial plan for the client. Having that plan executed via load funds is simply one way of compensating the advisor and assuming the funds are held for a long time it's not particularly expensive.

But, paying an advisor a fee based on either the amount of assets or by the hour is a better way to compensate him since it removes the appearance of bias.