Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The A to Z of fund share classes
Investors can often find it difficult to find the right fund out of thousands at the best of times, but have you ever wondered what the various letters attached to individual collectives mean?
For investors looking for a good deal, these letters are important and can determine whether you end up paying more for the same fund and whether that fund is even available to ordinary investors.
Back in 2014, fund managers brought in funds with no commission levied on them after the Financial Conduct Authority (FCA) banned the payment of trail commission by managers to investment platforms.
For example, Guinness Global Equity Income Fund comprises four different share classes, which are Y, X, Z and C.
For retail investors looking for the most competitive price, Guinness Global Equity Income Fund Y (IE00BVYPNY24) features the lowest ongoing costs at 0.99% and complies with Retail Distribution Review (RDR) rules.
In some cases, this type of fund can replace the legacy class X version, which has a higher charge of 1.24%.
Guinness Global Equity Income Fund Z (IE00BQXX3N15) is a bookbuild class which was used to build the fund to a critical mass of approximately £100m before being converted to a Y class. Ongoing charges are low at 0.74% to appeal to early adopters of the fund.
The most expensive is Guinness Global Equity Income Fund C (IE00B3PB1722) with an ongoing charge of 1.99% and an initial fee, but this fund is non-RDR compliant and only suitable for offshore advisers with a set amount of money.
THE DIFFERENCE IS NOT ALWAYS SIGNIFICANT
In some cases, the different share classes may not have a big impact on charges. Neptune Global Equity Fund C (GB00B8DLY478), the newest Neptune fund following the FCA rules, has a 0.96% ongoing charge.
The older and bundled version, Neptune Global Equity Fund A (GB0030679053), has an ongoing 0.94% charge after 0.92% is rebated from the original 1.7% charge.
Investors should be wary as some investment platforms rebate costs and have lower fees for individual funds, but these may not be available if they invest in a fund directly.
AJ Bell active portfolios head Ryan Hughes says for some funds R stands for retail and I for institutional, with the latter being the cheapest.
‘The problem with the I class for direct investors is that unless they are investing through a platform like AJ Bell, the minimum investment on the I class can often be at least £1m, if not higher,’ comments Hughes.
He recommends investors take a close look at the charges to make sure they invest in the correct share class if there is more than one. (LMJ)