Bulls n' Bears

Loan-financed investment


Usually loads are applied when there is enough demand for investment, and people willingly pay for the load to be able to invest.
This happens in a healthy scenario when the present is so good and stable that the future seems so much more brighter.

Any additional expenditure on investment may seem like a bad thing, but if you further scrutiny it, it means things are really doing good and chances are you might just get a good profit out of that investment.

Having said the above, loads have risk. For example you will be buying an investment at a premium to the face value. this means your cost for the product is higher and hence higher is your risk of recovering your money or profit on your investment. The risks in load financed investment is because of the higher cost of the instrument of investment.

When you pay a premium your profit margin is squeezed and you might end up in a break even or lower profit, which cannot be entirely ruled out. Corrections or bad conditions of markets come without any alarm, leaving you neither the time nor the cushion of safety to get out of it with less loss.

The load in equity which is termed as premium are worst hit. Last bull market saw many of these loaded with premium equities beaten down to fair value in the ensuing correction of 2008. Even IPO's (initial public offers) were loaded with premiums and they often fell below their price in the opening day of their listing.

Entry loads or exit loads are also similar as they increase the cost per unit. So, there is a word of caution to be exercised when going for load- financed investments.
The best time is to invest slow and steady in load free environments, these might give slower returns in the beginning but they are risk free and worth it.