In many mutual fund families, seven or more types of share classes may be offered for a single fund. Unlike stock classes, which identify per share voting rights, fund share classes identify the fee structure the investor must pay to participate in the fund. T shares are a type of hybrid class used by some companies to extend their investment products beyond the standard share class framework.
Define Share Classes
Each class within a fund family invests in the same set of securities. However, the load structure or sales charge the investor must pay is different for each share class. One class may require an up-front load, another may require a back-end load, and a third may require a combination of a load and a fee. Each class may also charge the investor other types of fees and expenses in addition to the load charges.
Standard Share Classes
Standard mutual fund class shares are classes A, B and C. A shares typically require an up-front load, B shares require a back-end load, and C shares charge a 12b-1 fee and either a back- or front-end load. Front-end loads are paid at the time of share purchase, and back-end loads are due when shares are redeemed. Known as a multi-class investment structure, the variety of share classes allows the investor to choose a fund that fits his investment goals.
Companies aren't limited to offering the standard share classes and may offer other class shares with varying load structures. For instance, T shares are a hybrid load structure that companies use to provide further flexibility for investors. According to independent investment researcher Dan Hallett, the T stands for tax because the T shares are perceived as having a tax advantage. The perceived tax advantage is due to the distribution structure of a T share, which may offer high monthly cash distributions, much of which is not taxable upon receipt.
T Load Structure
The load structure for T class shares varies according to the company offering the shares. Some may sell T class shares with a front load and no 12b-1 fee and others may sell the class T shares with 12b-1 fees and a back load. Companies may also choose to limit who may purchase T class shares. In some cases, new investors may be blocked from purchasing T shares. All T share fee and distribution structures should be examined and understood before purchasing mutual fund shares. Mutual funds can lose value and aren't FDIC insured.
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