Share Class Type

Share class type indicates the distribution characteristic or channel for which a particular share class is intended. Morningstar considers five share class types: no load, front load, level load, institutional, and retirement.

No-load share classes are fund share classes without front- or back-end sales charges (called loads). They’re typically purchased directly by investors or through advisors for use in model portfolio programs. The typical no-load fund does not carry any letters at the end of its name but can sometimes end with the word retail or investor. If the share class has a 12b-1 fee, it is typically 0.25% or less. The common minimum investment for this share class is $100,000 or less.

Front-load share classes charge a commission to compensate the advisor for making the sale to a client. This charge is deducted from the initial investment. Front-load share classes typically have the letter A at the end of their name. The shares are usually the most cost-effective for long-term investors using a commission-based broker. The maximum front load is often between 4.00% and 5.75%, the typical 12b-1 fee is between 0% and 0.50%, and the investment minimum is often $10,000 or less. The sales charge percentage often declines for larger initial investments.

Level-load share classes charge a higher ongoing 12b-1 fee but typically no upfront sales commission or front load. The higher ongoing fee is often compensation for the financial advisor. This share class is for investors using a retail financial advisor.

Institutional share classes are purchased by large institutional buyers, such as pensions, foundations, and endowments. The minimum investment is typically $1 million or greater, and investors often must prove their qualifications. Because of the large purchase requirement, this share class generally has a lower expense ratio than other share classes focused on retail or individual investors.

Retirement share classes are typically only available for retirement plans such as a 401(k), 403(b), or pension plans. The share classes will generally have no loads or sales commissions. Different expense ratios among multiple retirement share classes of the same fund represent different built-in compensation structures for the custodian, recordkeeper, and potentially the advisor of the retirement plan. Common retirement share-class labels are R1 through R6 but can also be identified by the letter K or retirement in the name.