Mutual Fund Share Class

What is a mutual fund share class? What are the differences between the main fund share classes? Find a clear explanation here.

Many investment funds offer several different classes of fund shares designed for different types of investors. The primary difference in the share classes of mutual funds is found in the total expense ratio (TER) applicable to each share class.

All shareholders invest in the same fund with the same portfolio, but the term and conditions vary between share classes.

Typically, investment funds offer three share classes: A, B and C shares.

A shares: Investing in A shares typically involves paying a front end load, but the ongoing TER is generally lower than that of other share classes. A shares typically come with quantity-based discounts on the front end load and the TER, allowing large-scale investors to purchase and hold fund shares at a lower cost than other shareholders. They typically either have no back end loads or the back end loads are low compared to those of other share classes. As a general rule, investors must meet minimum investment requirements (typically CHF 50,000 or more) in order to purchase A shares. You may also have to hold your shares for a minimum investment term (four years, for example). A shares are a good choice for investors who are willing to invest a large amount of capital into one investment fund because the lower ongoing TER means that you pay less to hold your shares.

B shares: Investing in B shares typically does not involves paying a front end load, but you pay a back end load when you sell your shares. The TER of B shares is generally higher than that of A shares. Typically, the back end load decreases every year that you hold B shares. The back end load is generally waived completely when shares have been held for a certain number of years. Many funds allow holders of B shares to convert their shares to A shares when certain requirements are met (when shares are held for a certain number of years, for example). The higher TER charged means you pay more to hold B shares, but the option to convert your shares to A shares after holding them for a certain length of time makes them an alternative for buy-and-hold investors who do not have enough investment capital to qualify for A shares from the start.

C shares: Investing in C shares typically does not involve paying a front end load, and you may not pay a back end load if you hold your shares for a minimum investment term (typically just one or two years). But the ongoing TER applicable to C shares is generally higher than that applicable to A shares and in some cases that of B shares as well. Unlike B shares, C shares cannot be converted to A shares at any point, regardless of how long they are held. Because the TER of C shares is relatively high, they are not well suited to buy-and-hold investments. If you want to make smaller, short-term investments in investment funds while benefiting from maximum flexibility (because the back end load is waived after a relatively short minimum investment term).

Some investment funds offer a broader range of share classes or sub-classes, with each class applicable to investors who meet different criteria (minimum investment capital amounts, for example).

In addition to TERs, share classes may also dictate dividend entitlements and the inclusion of special benefits (personal investment advisory or portfolio management, for example).

See also: Dual purpose fund

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