Index mutual funds, based on baskets of stocks or bonds selected to track a market passively, are surging ahead of many actively managed portfolios this year.

So it's small wonder that some banking companies - including Wachovia Corp. and Washington Mutual Corp. - are now offering brokerage-sold versions of index funds previously offered to institutional clients, complete with a sales charge.

Some observers question, however, whether it makes sense to charge sales fees for a product that many nonbank funds offer without such charges.

"Somebody's getting ripped off," said Thomas Grzymala, a fee-only investment adviser and president of Alexandria Financial Associates, Alexandria, Va. "Why pay a load when you don't have to? Why start out in the hole?"

But sales-fee advocates assert that the charges - even for generic index funds - are needed to cover the costs of investment counseling.

Ultimately, advice about asset allocation within a portfolio produces most of the value for the client, said David Ribbens, retail product manager for the Portico mutual funds. These funds are managed by Firstar Investment Research and Management Co., a subsidiary of Firstar Corp., Milwaukee.

"The notion that you pay a load to buy a fund is one of the great myths," Mr. Ribbens said. "You pay a load to buy the services of a financial professional."

In the absence of separate planning fees, a sales charge is a consumer- accepted alternative, Mr. Ribbens said. Portico's Equity Index Fund, which mirrors the S&P 500, carries a 4% sales load.

Not everyone agrees that portfolio allocation and even ongoing rebalancing, a feature of some advisory programs, merit such a high charge.

"Four percent is a hell of a lot of money," Mr. Grzymala said. "The most I charge my clients is 1% of assets for portfolio management - and they all go into no-load funds."

But some industry observers see value even for loaded index funds as part of portfolio renovation for some conservative bank customers.

"For someone who's sitting in a money market fund and gets advice to go into equities, it's pretty valuable," said Jeff Kelley, managing editor of Morningstar Mutual Funds, a Chicago-based newsletter.

Sales charges combined with continuing expenses raise a high performance hurdle for bank proprietary funds in comparison to their identical no-load competitors.

"Banks have to be giving fairly substantial advice to be making up for the difference," said Glen Buco, a financial adviser in Annandale, Va.

The trend toward index investing is only beginning, according to executives at the Vanguard Group, probably the staunchest advocate of the approach.

"Index investing is virtually an infant now compared to where it will be a decade from now," predicted Gus Sauter, vice president for quantitative equities at Vanguard. Only 4% of all equity mutual fund assets are now invested though indexing strategies, he said.

Indexing outperforms active management in the long term, offers predictability through diversification, and confers tax advantages through low portfolio turnover, he said.

"It's an education process to make converts out of the skeptics," Mr. Sauter conceded. Active portfolio managers will continue to take pot shots at the passive strategy, but he thinks even the tenacious detractors will eventually "throw in the towel."

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