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A share class is a classification used to describe a particular kind of share offered by a company or mutual fund with several share options. Typically, shares are known by letters of the alphabet, like Class A stock and Class B stock, although they may also be known by terms such as common and preferred stock. Knowing the share class is important, as it provides information about the rights and benefits associated with the share in question. Most companies publish information about their share classes for the benefit of investors.
Different shares may include different voting rights, as well as access to benefits like dividends. For example, common stock typically comes with voting rights, allowing people to participate in shaping company policy. By contrast, preferred stock has a guaranteed dividend, generating more immediate returns for the investor, but may not come with voting rights, with the investor depending on the voting shareholders and company management to make good choices.
In mutual funds, share classes are divided by the type of fees associated with them. Some shares come with a front end load, commissions and fees paid to join the fund at the time the shares are purchased, while others have back end loads, assessed when shares are sold. Mutual funds may also rank shares by available returns or classify them by the size of purchase. All mutual funds produce share class information in distributions of materials about their products, allowing people to compare the options and select the one best suited to their needs.
When buying shares, people consider the share class as a component in their decision-making. Investors who want voting rights will seek out share classes offering votes, for example, while people to whom dividends are important seek out stocks with guaranteed dividends. The share class cannot change in most cases, although sometimes, people can buy convertible stock, which is stock that can be converted between classes when a triggering event occurs or within a set period of time. Such stock offers flexibility to investors and can be more expensive.
People who are not sure about selecting the best share class for their investment strategy can consult a financial advisor or broker. These financial professionals can provide detailed information on what the different share classes mean and their ramifications for the investor's portfolio and investment strategy. They may also have recommendations specific to the client's needs, depending on the situation, and can also provide people with information about investments to steer away from.