Fundsupermart.com is selling the Commerzbank range of Global Sector Index funds at zero load. There is no transaction cost at all when the funds are purchased at the website. "Zero load is exactly that. There are no hidden charges, or back end fees, or wrap account fees of any kind. And there is no minimum holding period," says CEO of Fundsupermart.com, Moh Hon Meng.

HOW DOES THE COMPANY MAKE MONEY?

"We think that the index fund will not be the only fund that the investor will have in his portfolio. He may diversify with actively managed unit trusts, and we will be able to make our commissions from that. Also, we do get paid a small trailer fee by the fund manager," Moh explains.

WHAT ARE INDEX FUNDS?

Index funds are unit trusts that aim to replicate the performance of a specified market benchmark or index. This is accomplished by buying a representative sample of the securities that make up the index. Unlike actively managed unit trusts, indexing is a "passive" investment strategy that emphasises diversification and low portfolio turnover. Little or no human judgement is required on stock selection. As a result, the fees associated with index funds tend to be lower than actively managed funds since they incur lower advisory fees, and transaction and research costs.

Index funds, in general, have a reputation for outperforming actively managed funds. For example, the Vanguard S&P 500 index fund has outperformed over 90% of all domestic equity mutual funds over the past three and five years in the United States.

Moh points out: "When you invest in an index fund, you are investing in the market. But when you invest in an actively managed fund, you are investing in the capability of the fund manager to outperform the market. Actively managed funds tend to be higher in costs, so the fund managers have to outperform the market by at least the higher costs. If not, investors will be better off with the index fund of that particular market. One of the key attractions for index funds is its low cost. We definitely think that investors should have exposure to index funds in their portfolios, and we are doing our bit to keep the costs low."

OTHER UNIT TRUSTS AT ZERO SALES CHARGE AS WELL?

When asked if Fundsupermart.com will be offering other unit trusts at zero load, Moh says: "No, we will confine it to just index funds. What we will do over time, is to help investors identify top performing actively managed unit trusts that consistently outperform their benchmarks. These unit trusts tend to have higher charges, but if the fund manager can continue to outperform the market, then he's worth it."

If you have any comments, send them to honmeng@fundsupermart.com.