Mutual funds have become a staple of the modern investor. If you have a 401(k) or employer-sponsored retirement account, you’ll want to learn more about the R-class shares of mutual funds.

Since mutual funds are classified based on fees and availability, R-class shares offer unique advantages for retirement savers. Put simply, the R-class of mutual funds are available only through employment-based retirement accounts, which means you cannot buy them on the open market. Although R-class shares do not have a sales charge, some of them carry annual expenses that could influence your selection.

Mutual funds with R-class shares are meant for retirement-minded investors or those nearing the end of their career. For this reason, they are often referred to as retirement shares. They are specifically designed to help retirement savers incorporate relevant mutual funds into their portfolios for the purpose of long-term value investing. In other words, R-class shares are intended to provide income in future years rather than short-term lump sum payments.

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R-class shares are not sold directly to investors, but to financial intermediaries that serve employer-sponsored, defined-contribution retirement accounts. In other words, investors access R-class mutual funds through their employers or work arrangement. The intermediary executes the purchase of the funds on behalf of the investor, as well as the sale and exchange. To qualify for Class R shares, you must have access to a 401(k), 457 or employer-sponsored 403(b) plan.

The basis of an R-class share mutual fund also includes benefits like profit sharing, healthcare benefit funding and money purchase pension.

Workers with an employer-sponsored retirement account can also take advantage of matching contributions to purchase more R-class shares. They can also open up their own retirement accounts to access these assets.

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Since mutual funds that charge loads are not allowed in employer-sponsored retirement plans, R-share mutual funds are often the go-to asset class for long-term retirement savers. R-class shares were designed to allow securities firms to serve retirement planners without charging a load. The companies involved in managing R-class shares are regulated by the Financial Industry Regulatory Authority.

Unlike A- and B-class shares available to all investors, R-class shares do not carry an initial or deferred sales cost. However, they do carry annual expenses that could make them more expensive than their counterparts, especially if held for several years. Basically, the fees associated with R-class shares are based on the cost of maintaining your retirement account. Things like marketing and management costs incurred by the broker or intermediary are covered by the fees.

R shares still have fairly low expense ratios but tend to be costlier than index funds. As an example, the American Funds Growth Fund of America R1 (RGAXX) has a higher expense ratio than an actively managed growth fund. American Funds is a common R-share fund family for 401(k) plans.

To learn more about other funds by American Funds, check out the fund company page here.

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If you have an employer-sponsored retirement account, there’s a good chance your portfolio is exposed to R-share mutual funds. This article should help you determine whether you want to take advantage of matching contributions or feel that the no-load option is beneficial for your long-term goals.

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