Fund share classes
Also known as: share class
Fund share classes are different versions of the exact same underlying , each with its own fee structure, minimum investment, and sometimes its own , even though every share class owns an identical of securities. A single can offer several share classes side by side, and an investor's return can differ noticeably depending on which class they end up holding.
The differences between share classes come down to who pays what and when. A commonly used naming convention labels one class with an upfront charge deducted at the time of purchase, another with no upfront charge but a higher ongoing annual fee and sometimes a fee for selling within the first few years, and another reserved for large institutional or retirement plan investors that carries the lowest ongoing costs but requires a much higher minimum investment. Because the underlying is identical across classes, the only real difference in outcome is the cost structure, a lower cost share class of the same fund will outperform a higher cost share class of that fund over time by roughly the fee difference between them.
Investors, and especially anyone working with a financial advisor, should confirm which share class they are being placed into and why, since being sold a more expensive class of a fund when a cheaper class of the identical fund is available provides no investment benefit at all, only a higher cost. Many funds have moved toward lower cost share classes in recent years as fee competition across the has intensified.