Share Class: A Closer Look

Share class is a term used to denote different types of company or mutual fund shares. Generally, different classes of company shares carry different privileges and voting rights, as determined by the issuing company. Mutual fund shares also differ, in that each share class has a different level of fees and expenses. Understanding the differences between share class is important for anyone seeking to invest in the stock market.

Differences between Share Classes

Sometimes the differences between share classes are obvious, such as voting rights and responsibility for company decisions. Other differences may not be so, such as level of risk or fund performance. In the case of company stocks, shareholders who own certain classes of stocks may receive certain benefits, such as higher dividends or the right to liquidate the company in certain cases. Shareholders are also often able to control the voting rights of a company, depending on the type of share class they choose. Generally, a higher class share might get more votes than a lower class share, which could ultimately result in a greater influence over the business.

In the case of mutual funds, the differences in share class are centered around two key areas: distribution rate and expenses. A mutual fund’s distribution rate has to do with how it pays out capital gains and dividends earned by the fund. Shares of a fund with higher distribution rates are more likely to generate more income for the owners. Expenses are also important, as higher class shares will usually carry higher management and operating fees. Moreover, some funds may assess redemption fees and other charges when investors wish to exit their investment.

Considering Share Classes

Share classes are best thought of as weights in a portfolio. Different classes of stock can provide different levels of voting rights and privileges. Mutual fund classes can be considered for differences in the fees and expenses associated with the fund. When it comes to making investments, it is often wise to assess the different shares offered in order to ensure that the best possible return is generated on the investment. Understanding the pros and cons of each share class is essential in determining which one to select. Furthermore, certain regulations, including mutual fund regulations, may restrict certain share classes. Investing in this type of vehicle, as with any investing decision, should be discussed with a financial advisor.