A share class is a classification given to a particular asset, such as common stock or a unit in a mutual fund. Shares of "Class A" and "Class B" common stock are two examples of the various rights and benefits associated with the ownership of multiple classes of common stock in a company that issues more than one class of this class of stock. Mutual funds also have share classes, which bear variable sales costs, expense ratios, and minimum beginning investment requirements. As an investor, you must be aware of the class of shares you are buying, regardless of whether you are purchasing the common stock of a public business or the units of a mutual fund.

Basics of Company Share Classes

Generally speaking, multiple share classes within the same business bestow distinct rights onto the shareholder. A public business could, for instance, have two classes of common stock outstanding: Class A common stock and Class B common stock. When a business initially goes public and issues shares in the main market, the firm's leadership often agrees upon this dual-class structure.

For instance, a private business that is going public for the first time via an initial public offering (IPO) can decide to provide the company's current stakeholders Class B shares while also distributing Class A shares to new investors in the company. A structure with two distinct classes of shareholders may be put in place if the company's founding shareholders want to sell the bulk of their holdings in the business while continuing to have significant influence over its operations and strategic direction. In situations like this, the voting rights associated with class B shares are frequently increased.

During the 2015 transition of Google's parent company from Google Inc. to Alphabet Inc., the company implemented a dual share class structure. Both an A-class share, denoted by the ticker symbol GOOGL, and a C-class share, denoted by the ticker symbol GOOG, were distributed by the firm. Both trades at about the same price level, but investors in the C class don't have any say in company affairs. Additionally, the corporation distributed shares of a B class, which were set aside for the management and other controlling parties.

Basics of Mutual Fund Share Classes

Investors in mutual funds may often choose from several different share classes. Each class of investments purchases from the same investment of assets and adheres to the same set of rules and goals for their portfolios. However, the fees and expenditures they each incur are different, which causes a difference in their performance. There may also be variations in other criteria, such as the amount of investment invested initially.

The A share is the most popular kind of share class, and it contains a front-end load, often known as an upfront payment or due at purchase. These funds could seem pricey initially, but they might end up being more cost-effective if kept for a longer period. These front-end sales commissions may range from 2% to 5.75%, depending on the fund and the amount bought.

The B-share class is the antithesis of the A-share in that it is subject to a back-end load, also known as a commission that must be paid when the investor sells the share. This cost will ultimately become zero if you continue to hold onto the mutual fund for a long enough period of time. B shares almost always come with the opportunity to be converted into A shares after around seven years.

The C-share class incurs what is known as a level-load cost, which is an annual fee of about one percent that is charged for the duration of the fund's life. Conversely, C-shares sometimes have a contingent deferred sales fee attached to them, which might become payable if the shares are sold within the first year of their issuance. The expense ratios, also known as the yearly administration and maintenance fee that the fund levies, are typically greater for B and C than for A shares.

Institutional Share Classes

There are several different share classes available for mutual funds, and some of these include designations such as I, R, N, X, and Y. These are the kinds of shares referred to as institutional shares. These classes of shares are often exclusively offered by mutual funds to individuals with a high net worth, typically more than one million dollars, or to institutional investors who can make deposits in the seven-figure range. This should be pursued: When compared to other share classes available via a mutual fund, institutional shares often come with the lowest fees and expenditures. The institutional class of shares almost always results in the highest returns because of the relatively low expense ratios.