What is a 'Share Class'
A share class is a designation applied to a specified type of security such as common stock or mutual fund units. Companies that have more than one class of common stock usually identify a given class with alphabetic markers, such as "Class A" shares and "Class B" shares. Mutual funds also have share classes but often are determined by how the sales charge is paid.
BREAKING DOWN 'Share Class'Different share classes within the same entity typically confer different rights to the stock holder.
Stock Share Classes
For example, a public company may offer two classes of common stock outstanding: Class A common stock and Class B common stock. This dual-class structure is typically decided on when a company first goes public and issues stock in the primary market. An example is when a private company that is undertaking an initial public offering (IPO) may choose to issue Class A shares to its new investors, while the original owners of the company receive Class B shares. In this case, the Class B shares would typically have enhanced voting rights. A dual-class structure such as this would be used if the original owners of the company wanted to sell the majority of their ownership stake in the firm, but still maintain majority voting rights.
As an investor, it's important to know what class of shares you are buying when you purchase common stock in a public company. An example of the dual share class stock is in Alphabet Inc. The company issued an A class, with the ticker (NASDAQ: GOOG) and the C class with the ticker (NASDAQ: GOOGL). Both trade around the same price level but the C class shares do not have voting rights. The company also issued a B class share, but this is reserved for management and other controlling parties.
Mutual Fund Share Classes
Mutual funds have several share classes available for purchase, which are tied directly to how the fund is purchased by an investor. The most common share class is the A share, which is an upfront sales charge. These funds may seem costly in the beginning but may be less expensive if held over the long-term. These upfront sales charges range from 2 to 5.75%, depending on the type of fund and the volume purchased.
For investors looking to purchase funds without an upfront sales charge could use the C share class, which charges an annual fee for the life of the fund, which is around 1%. However, C share funds do often have a one-year holding period or a contingent deferred sales charge may be triggered in the event of an early liquidation. Investors looking to remain in the mutual fund for the long-term should compare the upfront sales charge versus the level charge and determine which the more cost effective option.
There are several other mutual fund share classes, which are dubbed to be used on an institutional basis. Share classes like I, R, N, X and Y are all examples of shares available.