No-Loads vs Load-Waived Funds

What's the Difference and Which Mutual Fund Type is Best?

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Learn the difference between no-loads and load-waived funds. Photo: Getty Images

When comparing no-load funds vs load-waived funds, you will find one main similarity: They do not charge a mutual fund load. However, their similarities in their respective mutual fund fee structure end there. Although neither fund types charge a load, they can have different expenses.

In summary, there's a few key differences between no-load funds and load-waived funds that are important for investors to understand before investing.

Key Takeaways

  • Key differences between no-load funds and load-waived funds are fee structure, name and access, and share class identifier.
  • No-load funds generally have lower average expense ratios than load-waived funds.
  • Load-waived funds are most often found in 401(k) plans.

Differences Between No-Load Funds and Load-Waived Funds

Here are the key differences to know about no-load funds and load-waived funds:

  • Fee Structure: A true no-load fund does not charge any load and it does not have any fees, such as 12b-1 fees, that seem hidden to many investors. Whereas load-waived funds may have such fees, although they don't charge a load. This subtle difference can add up to a significant long-term difference in total fees and average annualized returns.
  • Name and Access: Load-waived funds are mutual fund share class alternatives to loaded funds, such as A share class funds. As the name suggests, the mutual fund load is waived (not charged). Typically these funds are offered in 401(k) plans where loaded funds are not an option. This way an advisor or broker who gets paid by commission can still make money without getting paid the load (loaded funds are not allowed in 401(k) plans).
  • Share Class Identifier: Load-waived mutual funds are identified by an "LW" at the end of the fund name and at the end of the ticker symbol. For example, American Funds Growth Fund of America A (AGTHX), which is an A share fund, has a load-waived option, American Funds Growth Fund of America A LW (AGTHX.LW). In contrast, no-load funds do not have any letter or letters, such as A, B, C, D, R, or LW, at the end of the fund name indicating a share class.

Which Is Best, No-Load or Load-Waived?

The no-load vs load-waived comparison is a case of apples and oranges. However, no-load funds generally have lower average expense ratios than load-waived funds. Lower expenses often translate into higher returns to the investor, especially over the long-term. Therefore no-loads are generally better than load-waived funds, at least in terms of lower expenses, which can lead to higher returns.

Watch for 12b-1 Fees in Load-Waived Funds

Remember that the load-waived fund is a fund offered by an advisor or broker who wants to sell a fund without a load but still get paid. How do they do this? They remove (waive) the load but keep the 12b-1 fee. Therefore load-waived funds may sound like you are getting a good deal but you need to do your research and be sure you are not buying a fund with a high 12b-1 fee.

The Bottom Line

If you have a choice between the no-load and load-waived versions of the same mutual fund, it is generally best to buy the one with the lowest expense ratio, which will typically be the no-load fund. Load-waived funds are most often found in 401(k) plans. In this case, if you have no other choice, the load-waived fund can be acceptable, especially if the employer offers matching contributions.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Capital Group. "The Growth Fund of America Prospectus, October 30, 2020," Page 28.

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