Load-Adjusted Return

A load-adjusted return is the investment return on a mutual fund adjusted for loads and specific other charges, such as 12b-1 fees. Loads, or fees charged by some mutual funds for marketing or buying and selling shares, are like all other investment fees in that they have a significant effect on an investor's returns.

A load-adjusted return is how much of a return an investor sees. This is calculated after investment fees charged to buy and sell shares of mutual funds are subtracted from investment returns. If an investor puts $6,000 into a no-load mutual fund and earns a 10 percent return the first year, he has earned $600 if he decides to cash out. But if the mutual fund charges a 1 percent front-end load to buy shares, the investor would lose $60 when he purchased, leaving $5,940 to invest. The same 10 percent return would then earn him only $594.

Index funds do not charge a fee just to invest in their funds. Actively managed mutual funds do charge investors a fee, commonly referred to as front-end load, just to invest in their funds. Some actively managed mutual funds charge other types of fees, such as back-end loads or marketing and distribution fees, that may or may not apply depending on whether an investor withdraws all or part of their investment in the fund before a specified period.

Many investors advocate sticking to mutual funds that have no loads, no 12b-1 fees and low expense ratios.

An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds adhere to specific rules or standards (e.g., efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets.

Investing in an index fund is a form of passive investing. The primary advantage of such a strategy is the lower management expense ratio on an index fund. Since expense ratios are directly reflected in the performance of the funds, actively managed funds and their higher expense ratios are automatically at a disadvantage to index funds. As a result, many actively managed funds struggle to keep up with their benchmarks. For the five-year period ending in 2015, 84 percent of large-cap funds generated a return less than the S&P 500. In the 10-year period ending in 2015, 82 percent of large-cap funds failed to beat the index.