DEFINITION of 'T Shares'

T shares are a new class of mutual fund shares. The “T” stands for “transaction.” (Don't confuse this new T share class, with the T for "tax" shares, a type of no-load share sold by some brokers.)

The mutual fund industry introduced T shares in response to the Department of Labor’s fiduciary rule, which was designed to put an end to unethical behavior among financial advisors – such as recommending a pricier fund option to clients so they’ll earn a higher commission. Because T shares provide one uniform price across the board, advisors are not tempted to push an expensive fund over a more affordable one. 

BREAKING DOWN 'T Shares'

Mutual fund share classes determine the amount of money investors pay to the fund company and the broker when they purchase the investment. The most common classes are A, B and C shares, but T shares could eventually replace some of these options.

T shares are low-load funds that generally charge a 2.5%  load (or upfront sales fee). Most T shares also have 0.25% 12b-1 fee, which is used to pay for distribution and other expenses. For larger fund purchases, the front-end load may be lower. These loads are much lower than those of A shares, which have front-end loads of 5% or more. Some investment experts predict that T shares could eventually replace A shares, particularly in the retirement marketplace.

Not only do T shares deliver higher transparency and fewer conflicts of interest – but these share classes may also offer investors major savings. According to a Morningstar analysis, T shares could save investors at least 0.50% in returns compared to current offerings.

 
 
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