Mutual Fund Share Classes

The most common mutual fund share classes are A shares, B shares, C shares, and institutional shares.

Each share class is designed to meet the needs of a particular type of investor. For example, some investors may prefer to pay lower expenses upfront, while others may be willing to pay higher expenses in exchange for lower up-front costs. 

Similarly, some investors may be focused on long-term growth, while others may be more concerned with generating income in the short term.

Here is a brief overview of the most common mutual fund share classes:

A Shares

A Shares, also known as front-end load shares, charge an up-front sales commission, or “load,” typically ranging from 3-5% of the initial investment. 

This commission is paid to the financial advisor who sells the fund. A Shares typically have lower ongoing expenses than other share classes, making them a good option for long-term investors who plan to hold the fund for many years.

The lower expenses are because investors have already paid an up-front fee, and thus, the ongoing expenses of managing the fund are lower.

A Shares also offer breakpoints, which are discounts on the sales commission for larger investments. For example, an investor may receive a 4% sales commission for an investment of N1 million or less, but only a 3% sales commission for an investment of above N1 million – N5 million.

B Shares

B shares, also known as back-end load shares or “contingent deferred sales charges” (CDSCs), do not charge an up-front commission. Instead, they have a lower up-front fee (1-2%), and investors pay a higher fee if they sell the fund within a certain number of years. 

B shares often have higher ongoing expenses than A shares.

However, they may be a good option for investors who want to invest in a mutual fund but cannot afford to pay the up-front sales commission associated with A shares.

C Shares

C shares, also known as level-load shares, do not charge an up-front commission. Instead, they charge a smaller annual fee (typically 1-2%) to cover ongoing expenses and pay the financial advisor who sold the fund. 

C shares do not have breakpoints, so investors pay the same commission rate regardless of the size of their investment.

One of the benefits of C shares is that they do not have a back-end load or redemption fee, so investors can sell their shares at any time without paying a fee. 

Institutional Shares

Institutional shares are designed for institutional investors such as pension funds, endowments, and large corporations. These shares typically have lower expenses than other share classes but require a larger initial investment.

As a result, institutional shares may offer more favourable pricing and higher returns than the above retail share classes.

In addition, institutional shares have different requirements than retail share classes, such as the need for a specific type of investor or the ability to enter into larger transactions. They may also have access to additional investment services, such as custom portfolio management or specialized reporting.

Factors to consider when choosing between A, B, C and Institutional shares

• Sales charges: A shares typically have up-front sales charges, while B shares have back-end loads, and C shares have level loads. Institutional shares may not have any sales charges.
• Expense ratio: This is the annual fee charged by the mutual fund to cover its operating expenses. Institutional mutual fund share classes usually have the lowest expense ratios. As an investor, you should compare the expense ratios of each share class and how they affect the total return on investment.
• Minimum investment: Institutional shares generally have a higher minimum investment requirement than retail share classes.
• Breakpoints: A shares may offer breakpoints, which are discounts on the sales charge for investors who invest larger amounts. B shares and C shares do not have breakpoints and Institutional shares may have different fee structures.
• Redemption fees: A shares typically do not have redemption fees, while B shares may have contingent deferred sales charges (CDSCs) for a certain period. C shares do not have redemption fees.
• Conversion options: A shares may offer conversion options, which allow investors to convert their shares into a different share class. B shares can also get converted into A shares after being held for a certain number of years. Class C shares generally do not convert to another class. Institutional shares may have different requirements for conversion.
• Investment goals and time horizon: A shares may be a good option for long-term investors who can afford to pay the sales charge and are looking for a low-cost, diversified investment. B shares may be a good option for investors who plan to hold the mutual fund for a few years and cannot afford to pay the up-front sales commission associated with A shares. C shares may be a good option for investors who cannot afford to pay the up-front sales commission and do not plan to hold the mutual fund for the long term. Institutional shares may be a good option for large institutional investors who require access to investment products with lower fees and expenses.

Bottom Line

Mutual fund share classes offer investors a variety of options to meet their investment needs. Each share class has its unique characteristics and benefits, and investors should carefully consider their financial situation, investment goals, and time horizon when choosing a share class. 

By understanding the differences between mutual fund share classes and carefully evaluating their options, investors can make informed decisions about their investment strategies and achieve their financial goals.

>> Ready to start investing in a mix of these share classes? View our collection of mutual funds.

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