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Why so many mutual funds have multiple share classes

In the early days of SMI, circa 1990-1992, I had to spend a lot of time in the newsletter explaining the mutual fund industry and the differences between load and no-load funds. As Morningstar explains, the old black vs. white distinction between the two methods of distribution no longer apply:

Until [the mid-1990s], many funds were only available with loads and through brokers. Others were sold without loads, and you had to buy them directly from their fund companies—no broker involved and no outside help given. There was really no overlap across those two worlds, and disciples of each actually refused to do business with each other in many cases. Here's the thing, though: The debate never made much sense to begin with, it's over, and nobody actually won.

Why is the debate over? Because a majority of funds are now sold both ways via multiple share classes. This Morningstar article provides a handy history of how this happened and what the landscape looks like today. A good read for those who find the variety of fund share classes bewildering ("Why are there so many ways to buy the same fund?") Here's the wrap-up:

For the most part, though, the 1990s world of pure load versus pure no load is no more. Nearly all funds are bought through some kind of intermediary, even if that intermediary is an online platform [Note: In SMI's world, that would be Scottrade, Fidelity, or Schwab.]... Most investors are just trying to decide what kind of intermediary to use and at what price for which services.

We still maintain that sticking with no-load share classes makes the most sense for SMI readers. And since we're doing the research for you to select the funds, you're free to gravitate to the broker who will execute your instructions conveniently and cheaply. We try to help you pick the one that's best for you in our periodic broker reviews ( Members Only).

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Posted by Austin at 5:02 PM | Comments (0) | TrackBack
Category(s): Mutual Funds
Tag(s): mutual funds, share classes

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