Advices for Funds Investors: Debunk Six Mutual Fund Myths

The beauty of a mutual fund is that you can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds. We reveal the mutual fund myths for you to get more benefits.

Mutual Fund Myth #1: “A closed-end fund is a mutual fund.”
Closed-end funds are often confused with, and mistakenly called, mutual funds. Closed-end funds, ETFs and mutual funds are types of investment companies.

Mutual Fund Myth #2: “Short-term capital gains distributions can be offset with capital losses — both short-term and long-term.”
Short-term capital gains distributions cannot be offset with other capital losses (long or short) and offers no economic value to mutual fund shareholders.

Mutual Fund Myth #3: “ETFs are cheaper than mutual funds.”
Saying that ETFs are cheaper than mutual funds is like saying that mutual funds outperform ETFs (or vice versa). Some ETFs are cheaper than mutual funds and some ETFs are more expensive than mutual funds.

Mutual Fund Myth #4: “Vanguard only offers index mutual funds.”
Vanguard offers actively-managed funds and index funds. They also offer exchange-traded funds.

Mutual Fund Myth #5: “A mutual fund load is part of the expense ratio.”
A mutual fund load is a fee charged when an investor makes a transaction in fund shares. Loads may be charged upon purchase of fund shares (front-end load) or upon sale of fund shares (back-end loads). These loads are paid to the broker for selling the fund (or advising an investor to the buy the fund). Mutual funds that do not charge loads are known as no-load mutual funds.

Mutual Fund Myth #6: “Mutual Fund Class B shares are no-load funds.”
Mutual fund B shares do not assess front-end sales charges, but carry a contingent deferred sales charge (CDSC) and have a higher 12b-1 fee (a 1% 12b-1 fee is common) than other mutual fund share classes. So, these Class B shares are not no-load funds.