Load-Waived Funds
Load-waived funds are a share class of a mutual fund that waives load fees typically charged to its investors (such as front-end loads). Whereas the load-waived fund is a fund offered by an adviser or broker who might remove (waive) the load fee but keep others, such as the 12b-1 fee, a true no-load fund does not charge any load whatsoever and does not have any fees, including 12b-1 fees. Load-waived funds are distinct from no-load funds, which do not charge any fees at all; load-waived funds will still charge an annual marketing and distribution fee, called a 12b-1. On the other hand, load-waived funds are mutual fund share class alternatives to loaded funds, such as class A share funds. No-load funds and load-waived funds do not charge a mutual fund load.
What Are Load-Waived Funds?
Load-waived funds are a share class of a mutual fund that waives load fees typically charged to its investors (such as front-end loads). Owning shares in a load-waived fund is a benefit to investors because it allows them to retain all of their investment's return instead of losing a portion of it to fees. In most cases, mutual fund companies will limit the number of load-waived funds and make them available only to certain investors.
Understanding Load-Waived Funds
The purchase of load-waived funds is sometimes restricted to those participating in defined contribution retirement plans and also for investors who invest a substantial amount in the mutual fund company's funds (such as institutional investors).
These special mutual fund shares commonly have an "LW" at the end of the fund's name and ticker to differentiate them.
The letter at the end of the fund name describes the load type: share Class A funds are front-loaded, Class B funds are back-loaded, and LW funds are load-waived funds.
Load-Waived Funds vs. No-Load Funds
No-load funds and load-waived funds do not charge a mutual fund load. However, there is a difference between the two. Whereas the load-waived fund is a fund offered by an adviser or broker who might remove (waive) the load fee but keep others, such as the 12b-1 fee, a true no-load fund does not charge any load whatsoever and does not have any fees, including 12b-1 fees.
A no-load fund is essentially a mutual fund in which shares are sold without a commission or sales charge. This absence of fees occurs because the shares are distributed directly by the investment company, instead of going through a secondary party.
On the other hand, load-waived funds are mutual fund share class alternatives to loaded funds, such as class A share funds. Typically these funds are offered in 401(k) plans.
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.
Index Fund Fees and Loads
An index fund is another alternative for investors looking to cut back on fees. An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500).
Index funds offer some of the same advantages as no-load and waived funds, and typically have low operating expenses. Index funds, such as those offered by Vanguard also provide broad market exposure and low portfolio turnover. These funds adhere to specific rules or standards (e.g., efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets.
Investing in an index fund is a form of passive investing. The primary advantage of such a strategy is the lower management expense ratio on an index fund.
Related terms:
12b-1 Fund
A 12b-1 fund is a type of mutual fund that charges its holders a 12b-1 fee, which covers the costs of the marketing and selling of shares, paying brokers, and advertising the fund to potential investors. read more
401(k) Plan : How It Works & Limits
A 401(k) plan is a tax-advantaged retirement account offered by many employers. There are two basic types—traditional and Roth. read more
Back-End Load
Back-end load refers to the money a mutual fund charges to a client for withdrawing money. read more
Exit Fee
An exit fee is a fee charged to investors when they redeem shares from a fund. Exit fees are most common in open-end mutual funds. read more
The of Expense Ratio
The expense ratio (ER), also sometimes known as the management expense ratio (MER), measures how much of a fund's assets are used for administrative and other operating expenses. read more
Index Fund
An index fund is a pooled investment vehicle that passively seeks to replicate the returns of some market indexes. read more
Investment Company
An investment company is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities. read more