Mutual fund share classes allow the same fund to be offered to investors with different types and sizes of fees. Although this can be done for a variety of reasons, the two most common are so the funds can accommodate:
This is also done so that financial advisers and brokers can choose the 1 or 2 mutual fund share classes that best fit the way they charge clients for their services. Investors can always go to the mutual fund company directly to find out if there are additional more cost affective share classes available for their situation. This information can be found in the fund’s prospectus which can be requested from your broker or from the mutual fund company directly.
Example 1: Vanguard Total Bond Fund Market Index
For individual investors with less than $5 Million to invest in the fund there are two share classes, which differ based on the amount you have to invest and the expense ratio you pay (don’t know what an expense ratio is? Read our article on Mutual Fund Expenses):
Neither of these share classes carry a load fee.
Example 2: PIMCO Total Return Fund
The PIMCO Total Return Fund has 3 different share classes that are currently available for individuals with less than $1 Million to invest. All have a minimum initial investment size of $1000, and differ based on the type and size of fees you pay.
Available to Investors with more than $1 Million:
Pimco Total Return Institutional (Ticker: PTTRX): This share class has no load fee and an expense ratio of .46%. The minimum investment size is $1 Million.
These are the fees and minimums as stated by the mutual fund companies themselves. When going through a financial advisor or online broker to purchase these funds you may pay a commission to do so as well as higher fees.
Before purchasing a mutual fund either directly from the mutual fund company, through an online broker, or through your financial advisor you want to make sure you understand mutual fund share classes so you know what you are purchasing and what fees and minimums are applicable.