Guide on Load Waived Funds

Last Updated: 6 Mar 2023

Mutual funds have been gaining popularity in the recent past. When a mutual fund provides investors with a well-diversified portfolio in a quick and hassle-free procedure, a higher expense ratio is one of the biggest issues investors suffer. However, there are certain types of funds that provide investors with some relief. They are termed Load-Waived funds.

This article spotlights Load-Waived funds meaning, load-waived funds vs no-load funds, and the benefits of load-waived funds.

Load-Waived Funds

As the name implies, load-waived funds are the mutual funds in which load fees charged to investors are waived off. Loads, in the context of mutual funds, refer to the charges investors need to pay for buying and selling mutual funds, to compensate the broker or financial advisor.

Loads charged on buying the mutual fund are called front-end loads. Front-end loads can reduce the overall amount invested. For instance, if an investor invests Rs. 1,00,000 with a 5% front-end load, his actual investment would be Rs. 95,000. Back-end loads are fees charged on selling funds. This ultimately reduces the investor’s return. Waived-off loads, therefore, offer partial financial relief to investors with increased returns.

Certain Investors investing via a financial advisor get access to load-waived funds. Additionally, these types of funds are offered via retirement plan 401(k).

Load-Waived Funds vs. No-Load Funds

Although both load-waived and no-load funds eliminate mutual fund load, they have differences. The key differences are mentioned below.

1. Fee structure

   Load-waived funds only waive load fees. However, it may charge fees such as 12b-1 fees. The 12b-1 fees are distribution charges levied on mutual funds. No-load funds are the share class of a mutual fund that removes all the fees charged on buying and selling certain mutual fund.

2. Identifier

   Load-waived funds can be identified from “LW” at the end of the fund name and ticker symbol. In contrast, no-load funds do not have such identifiers at the end.

3. Accessibility

   Load-waived funds are accessible only through an investment advisor. Additionally, they are used as an alternative to Class A share funds and offered in 401(k) retirement plans. No-load funds can be bought either directly from the company or via a brokerage firm.

4. Returns

   Since load-waived funds charge distribution fees, the investor’s return gets reduced by that portion. No-load funds, on the other hand, offer relatively higher returns due to entire fee elimination.

Benefits of Load-waived Funds

• By investing in Load-waived funds, investors can get the benefit of a lower expense ratio. Load funds usually have a higher expense ratio.
• Load-waived funds increase investors’ return by a portion of the load waived, which they might have lost by investing in load-waived funds.
• As load-waived funds are purchased through an investment advisor, your investment would be more research-based and logical.

 

To conclude, load-waived funds are a type of mutual fund where investors are not required to pay the fees charged. This reduces the expense ratio for such funds and increases the return for investors. However, not all the fees are removed. Investors still need to pay distribution charges. Yet, the elimination of front-end and back-end loads can provide relief to investors.

 

Frequently Asked Questions

Which one should I choose among load-waived funds and no-load funds?

Ans. Load-waived funds charge distribution fees, and your returns are reduced by that portion. No-load funds, on the other hand, offer relatively higher returns due to entire fee elimination. Moreover, you can invest in a load-waived fund only through an investment advisor. However, if you can research on your own, you can consider no-load funds.

Who can invest in Load-waived Funds?

Ans. Investors working with an investment advisor can invest in Load-waived funds. Additionally, they are used as an alternative to Class A share funds and offered in 401(k) retirement plans.