New 'low loads' weighing into the mutual fund market

For some investors, it must look like a backward step. But to the mutual funds, it is a necessary result of recent, dramatic changes in their industry. It is the ''low load'' mutual fund. With about a 3 percent sales charge, these funds cost more than ''no load'' funds that have no charge, but less than conventional ''load'' funds, which usually have an 81/2 percent entry fee. With a load fund, if you put in $10,000, only $9,150 is actually going to work for you. It might be some time before the fund grew to the $10,000 level and got the investor even again.

But with a no-load fund the entire $10,000 is being invested. With the growth of money market funds, all of which are no-load, many investors have come to expect a no-load when they switch to a stock fund.

Recently, however, a few funds have begun imposing smaller loads of 1 to 4 percent. In the current bull market, these small loads have not been costly for investors, because most of the charges are on so-called ''hot'' funds, growing so fast that the sales charges have been made up quickly.

In some cases, the low load is a 2 percent charge to get in and a 1 percent charge for each withdrawal, or redemption. In other cases, as at the Keystone Funds, there is no charge to begin investing, but there is a sliding redemption fee, ranging from 4 percent the first year, to 1 percent the fourth year, to nothing after that. Other funds charge a flat 3 percent fee at the beginning, putting $9,700 of that original $10,000 to work for you on the first day.

A fund that has taken this latter course is the Fidelity Group's Magellan Fund, a growth fund specializing in younger, sometimes more speculative companies. In recent years Magellan has been one of the best-performing and fastest-growing funds in the business. The fund opened in 1966 as a no-load, then closed to new investors a short time later. When it reopened in 1981, it had the 3 percent load.

Apparently Fidelity does not feel the load hurts sales, because it has introduced two other funds with these charges. Its Mercury Fund, another growth fund, was introduced with a 3 percent load. And Fidelity Select Portfolios has a 2 percent load to get in and a 1 percent charge to get out. Select Portfolios is a group of six funds covering various industries; once an investor is in the group, he can make up to four free exchanges within the group each year.

Another top-rated fund, the Twentieth Century Ultra Fund, charges one-half a percent to get in and the same amount for any shares that are redeemed.

These charges are not being imposed just to control the number of shareholders in a hot fund, the companies claim. Rather, the funds' very popularity has made them much more expensive to sell. It takes more time on the phone to explain how they work; more prospectuses and applications are sent out that do not result in a sale; and with the growth of individual retirement accounts, there are more ''small'' sales of $2,000 or less.

At Fidelity, for example, the average amount of time put in by a telephone representative has increased from 100 seconds per call a year ago to 150 seconds today, spokesman Rab Bertelsen says. And the number of information kits sent out went up from 140,000 in May 1982 to 425,000 this May.

''So our cost for an individual solicitation has risen while the effectiveness of each solicitation has fallen,'' Mr. Bertelsen observed.

In the top-performing funds, however, the smaller load can be made up rather quickly. For example, Mr. Bertelsen says, if an investor had bought shares in Magellan on March 31, the load would have been covered by increased share value by April 13. He cautions that this is based on past performance and is no guarantee of how quickly the sales charge might be paid back in the future.

Other funds that have not yet added small sales charges are watching the Fidelity low-load funds and the other low-loads to see how their sales are affected. If they continue to do well, those no-load funds with good records are likely to join the low-load parade.

Is the low-load worth the money? With funds like Magellan or Twentieth Century Ultra, it probably is, but it is not necessary to pay a load just to get in a top-performing fund. Three of the 10 top-performing equity funds for the five-year period from 1978 to 1982 were no-loads: Twentieth Century Growth Fund, Twentieth Century Select Fund, and Loomis-Sayles Capital Development Fund.

It should also be noted that these low loads are being imposed on funds that are turning in excellent performances. But the performances are taking place in today's market, and this is no guarantee of how well they will do in the future. Also, these funds specialize in high-growth, more risky stocks and they should be watched closely. If their segment of the market takes a dive, you could lose a lot more than the sales charge.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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