Mutual funds are a great way for the typical person to invest because they offer diversification and professional money management in a single investment.

However, there are more than 6,000 mutual funds available to the public, which makes the task of choosing a fund a sometimes daunting task. Mutual funds also have several share classes, which determines the fee structure of the fund. Let us go over a newly introduced share class in the mutual fund space.

There are several different share classes of mutual funds, with the most popular being A, C and I. Share classes are established by funds to determine how the investment advisor or broker will be compensated, which is often called a ‘load.’ The A share mutual fund has an upfront load or commission that is charged only once. Upfront loads can range from 2% to 5.75%, depending on the fund and its investment style.

Another popular fund share class is the C share, which is the level-load option. In the level-load, the deferred fee is 1% and then, after 12 months, the fee charges an annual 12b1 fee of 1%. This is a great option for investors not looking to get hit with a large upfront fee; however, holding a C share fund for a long period of time will cost more than purchasing an A share.

The final share class is the I share, which is meant to be bought on the institutional level and is not available to the common investor except through a brokerage’s advisory or managed account. This share class allows the clients of a brokerage firm to buy an I share mutual fund at the fund’s NAV price and purchase or redeem at any point without penalty. The brokerage would typically charge an advisory fee for its services, instead of charging an upfront or level load through the mutual fund. I shares typically also have a lower expense ratio than both A and C share class mutual funds.

To know more details about the mutual fund share classes, click here.

A new share class has been introduced and has been growing immensely in popularity. This new class is called the D or N share, which is most similar to the I share class. Like the I share class, the fund has a lower expense ratio than its A and C share equivalents. However, investors do not need to go through a brokerage or investment advisor to purchase these D/N class funds.

These funds were created to help the self-guided investor gain access to professional money management without needing a broker. If an investor does their own research and decides that a certain mutual fund might be their best option, a D or N share class would undoubtedly be the best option and by far the most cost effective.

As a comparison, the Janus Balanced Fund will be used to show the difference between purchasing A, C and D/N share classes over the last five years. Each fund will start with an initial investment of $10,000 and the time period will be from February 28, 2013 to February 28, 2018.

A share (JDBAX) will be worth $14,776 or 38.55% increase.

• Upfront load of 5.75%
• Expense ratio of 0.94%
• 12b1 expense of 0.25%

C share (JABCX) will be worth $15,135 or 40.86% increase.

• Deferred load of 1.00%
• Expense ratio of 1.61%
• 12b1 expense of 1.00%

N share (JABNX) will be worth $15,965 or 45.95% increase.

• Expense ratio of 0.58%

As you can see by the comparison, over time the N share is the clear leader and the most cost efficient share class for an investor who is capable of self-guidance and purchasing the funds without the help of a broker or investment advisor.

The trickiest part of buying these no-load funds is that many mutual fund families do not offer them. An investor interested in finding these share classes should go directly to the fund family’s website for more information. Many fund families, like Janus Henderson, for example, will offer access to their no-load funds if done directly. Investment companies like Fidelity, Vanguard and Charles Schwab also offer a variety of their own and other no-load mutual funds for their clients as well. However, the D share class funds are becoming less popular. There are still a few D shares available but many are closed to new investors. N shares seem to be a more popular share class for no-load funds, which is almost the exact same thing as the D share class.

However, the D share class funds are becoming less popular. There are still a few D shares available but many are closed to new investors. N shares seem to be a more popular share class for no-load funds, which is almost the exact same thing as the D share class.

Overall, the investment industry is making its products more accessible and more cost effective for the average investor. The use of A and C share mutual funds is dwindling, with even major brokerage firms focusing on using I share funds for their clients. As the industry shifts to a lower cost structure, expect more mutual fund families to add more D and N share classes that are available to the public.