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Mutual-fund jargon is a jungle for investors

SHARE Mutual-fund jargon is a jungle for investors

It's a jungle out there. The different share classes of funds, most with varying fee structures, make it difficult for intelligent investors to get started even when they're willing to pay a load to financial advisers.

Checkbook at the ready and full of enthusiasm, they're stopped cold by jargon-encrusted choices that have absolutely nothing to do with investing - and everything to do with marketing."Will it be a front-end load or a contingent deferred sales fee plus a 12b-1 fee? Please select from Class B, Class C or Class D shares. Sorry, Class A is not available. But if your money goes into a retirement account and your employer is our client, you may qualify for Class Y shares, which make it a no-load fund. Or you might consider a no-load fund with a hefty 12b-1 fee" (which regulators say is not a true no-load, but a load fund in disguise).

All these choices are not what investors bargained for. Let's dispel the smoke that surrounds the purchase of mutual-fund shares by starting with the question that constantly arises: Is a fund for which you pay a sales fee (a load) somehow superior to a no-load fund bought directly from the fund company?

The answer is no. We studied the data from every possible perspective and found no difference between the investment results of load and no-load funds.

So you're not buying superior performance - although you do have a right to expect superior advice from your adviser in return for that fee. But your investment results will be affected by the decision you make when buying shares.

Here's why it pays to stop and think: When you take sales fees into account in figuring total return, load funds are at a statistical disadvantage. In almost every investment category over the past one, three, five and 10 years, the average no-load fund beat its load-fund counterpart on a load-adjusted basis.

Obviously, if you are able to chart your own course without a broker's advice, you're best off investing in superior no-load funds. But don't rule out the best-performing load funds. It's a pity the thicket of share-class options and wrap-fee plans you have to negotiate make this option so difficult.

A final point: If you buy broker-sold funds, an up-front sales fee is usually preferable to a back-end load.