This paper examines the benefits and costs of greenwashing in mutual funds. We identify greenwashing funds by analyzing their green disclosures using large language models (LLMs) alongside actual green investments. We find that funds engaging in greenwashing charge higher expenses while attracting greater flows from investors. Moreover, investors tend to be lenient and less sensitive to poor performance in greenwashing funds, encouraging underperforming funds to adopt this practice. However, greenwashing funds are more likely to incur regulatory costs and experience outflows, as reflected in ESG-related comment letters from the SEC. Finally, institutional and retail investors respond differently to greenwashing funds.