What Are Mutual Fund Class R Shares?

Definition and Example of R Share Funds

mutual fund share classes
Find out of R share mutual funds are a good fit for you. Getty Images

Have you seen class R share mutual funds? What does it mean when you see the letter R at the end of a mutual fund name? It's definitely not anything like a movie rating!

You're probably familiar with some of the common shares classes of mutual funds, such as Class A, Class B, or Class C. But what exactly are R shares and are they better than other share classes?

R Share Mutual Funds Definition

R share mutual funds do not have a load (i.e. front-end load, back-end load or level load) but they do have 12b-1 fees that typically range from 0.25% to 0.50%.

R share class mutual funds are only available through an employer-sponsored retirement plan, such as a 401(k). R share funds are designated as a retirement share class, hence the letter 'R.'

A common R Share fund family seen in 401(k) plans is American Funds. For example you may have seen American Funds Growth Fund of America or American Funds Fundamental Investors or American Funds Small Cap World in either R1, R2, R3 or R4 share classes.

Should You Buy R Share Mutual Funds?

If your 401(k) only provides R share class funds, your expenses may be higher than if the investment choices included the no-load (or load-waived) version of the same fund.

For example, the load-waived share class of American Funds Growth Fund of America (AGTHX.lw), has an expense ratio of 0.65%, whereas American Funds Growth Fund of America R1 (RGAAX), the R class version, has an expense ratio of 1.42%. That's a difference of 0.77% higher for the R share fund.

Over time, the larger expense ratio of the R share fund will be a big drag on performance and can translate into thousands of dollars less in total gain in the long run.

But if you want to take advantage of your employer's 401(k) plan, and R share funds are the only choice, you can still use them and find the best available that suit your objectives and risk tolerance.

 

It is wise to take advantage of any matching contributions your employer may make when you contribute to your own 401(k). However, be sure to pay attention to the especially if there is no employer match. Therefore, you may choose to open your own account and find a no-load fund.

For more on the major share classes of mutual funds, follow these links:

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.