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WHAT IS INVESTOR SHARES (IS)?
Investor shares are mutual fund class of shares that are structured specifically for investment by individual (retail) investors, as opposed to institutional investors. Investor shares are most commonly offered in open-end mutual funds.
Investors shares refer to a class of shares that are designed particularly for individual investors.
These shares generally carry higher fees than institutional shares, but carry lower minimums or requirements.
Investor shares are commonly found in open-ended mutual funds.
Understanding Investor Shares
Investor shares are one share class available for investment by individual investors in open-end mutual funds. Management investment companies structure open-end mutual funds with multiple share classes and fee levels. Investor shares may also be managed individually in a focused investment fund.
Institutional shares, on the other hand, are a class of mutual fund shares available for institutional investors. Institutional mutual fund share classes typically have the lowest expense ratios among all of a mutual fund’s share classes. They usually require a minimum investment of approximately $200,000 and may require other specifications for investment.
Any share class available for investment by individual investors can be considered an investor share. Open-end mutual funds can offer a wide range of share classes to different types of investors. Share classes can include A-shares, B-shares, C-shares, R-shares for retirement investing, Z-shares for employee investment, institutional shares for institutional investors and more.
Since open-end mutual funds are pooled investment structures, all of the share class investments in the fund are pooled and managed by the portfolio managers. However, management companies structure each share class offering to have its own fees and sales loads.
Fees and Commissions
Investor share classes often have the highest expense ratios. They are typically structured with sales loads, also known as commission charges, that are paid to intermediary brokers for trades. Management companies partner with intermediaries and distributors to sell investor share classes. These partnerships are usually what drive fees and sales loads higher for investor shares in comparison to other share classes in the fund.
Investor share classes transacted with full-service brokers will usually have front-end or back-end sales loads. The sales loads for all share classes are detailed in the fund’s prospectus. Each sales load is expressed as a percentage of the investment. Sales loads are charged to the investor and are not part of the fund’s expenses.
Investor share class expenses often include a 12b-1 fee. This fee is paid from the fund to its distribution network. The 12b-1 fee provides compensation to intermediaries and distributors supporting the overall distribution of the fund.1 Distribution partnerships are most common in investor share classes. Typically other shares of the fund, such as institutional shares, retirement shares, and Z-shares, do not involve sales loads.
The minimum investment is another factor that distinguishes investor shares from institutional shares and other shares in the fund. Minimum investments can vary broadly for funds across different platforms. Most investor share classes will have a minimum investment of $100, but it can be as high as $10,000. Institutional shares may have minimum investments of $1 million or more.
Share Class Investing
The Guggenheim Large Cap Value Fund provides an example of a fund managed with varying share classes, fees and minimum investments. The Class A and Class C investor shares include sales loads. These shares also charge 12b-1 fees that increase the total expense ratio. The minimum investment for the Class A and Class C shares is $2,500.2
For comparison, the institutional shares require a minimum investment of $2 million. The institutional share class does not require sales loads. It also does not pay any 12b-1 expenses.