Learn More about Mutual Fund Share Class Structure

A mutual fund is an investment company that pools money from multiple investors and then invests the pooled money in securities, such as stocks and bonds. Some mutual funds offer multiple types of shares known as “share classes”.¹ Each class invests in the same portfolio of securities and has the same management fee, but each class may have different other fees and expenses, depending on how the share class is serviced or distributed. For example, an investor who purchases a fund through an employer’s retirement plan may be charged different fees than one buying a fund in a retail brokerage account. A multi-class structure can provide benefits to each share class, including economies of scale, by allowing different types of investors to access the same fund.

As registered investment companies, mutual funds are regulated by the Securities and Exchange Commission (“SEC”). All mutual funds are required to have a board of directors (“board”) that oversees and monitors the fund on behalf of the fund’s shareholders. The board has a duty to represent the interests of shareholders.² The board determines if multiple classes are in the best interest of the individual classes and the fund as a whole, and the board approves and monitors procedures by which shareholder servicing fees and other expenses are allocated across share classes. Additionally, funds are required to have independent auditors, and as part of a fund’s annual audit, the independent auditor verifies that appropriate policies, procedures, and controls are in place and have been followed.

Within the robust governance structure required for mutual funds, a multi-class structure can be implemented to efficiently offer a broader range of investors access to the fund and increase benefits of scale, while protecting the best interests of each class and the fund as a whole.