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  1. onomewrites

    INVESTOR SHARES

    What are 'Investor Shares' Investor shares are mutual fund shares structured for investment by individual investors. Investor shares are most commonly offered in open-end mutual funds. BREAKING DOWN 'Investor Shares' Investor shares are one share class available for investment by individual investors in open-end mutual funds. Management investment companies structure open-end mutual funds with multiple share classes and fee levels. Investor shares may also be managed individually in a focused investment fund. Share Classes Any share class available for investment by individual investors can be considered an investor share. Open-end mutual funds can offer a wide range of share classes to different types of investors. Share classes can include A- shares, B-shares, C-shares, R-shares for retirement investing, Z-shares, for employee investment, institutional shares for institutional investors and more. Since open-end mutual funds are pooled investment structures, all of the share class investments in the fund are pooled and managed by the portfolio managers. However, management companies structure each share class offering to have its own fees and sales loads. Fees and Commissions Investor share classes often have the highest expense ratios. They are also typically structured with sales loads also known as commission charges that are paid to intermediary brokers for trades. Management companies partner with intermediaries and distributors to sell investor share classes. These partnerships are usually what cause fees and sales loads to be higher for investor shares in comparison to other share classes in the fund. Investor share classes transacted with full-service brokers will usually have front-end or back - end sales loads. The sales loads for all share classes are detailed in the fund’s prospectus. Each sales load is expressed as a percentage of the investment. Sales loads are charged to the investor and are not part of the fund’s expenses. Investor share class expenses also usually include a 12b-1 fee. This fee is paid from the fund to its distribution network. The 12b-1 fee provides compensation to intermediaries and distributors supporting the overall distribution of the fund. Distribution partnerships are most common in investor share classes. Typically, other shares of the fund such as institutional shares, retirement shares and Z-shares do not involve sales loads. Minimum Investments The minimum investment is also another factor that distinguishes investor shares from institutional shares and other shares in the fund. Minimum investments can vary broadly for funds across different platforms. What is a 'Class of Shares' A class of shares is a type of listed company stock that is differentiated by the level of voting rights shareholders receive. For example, a listed company might have two share classes, or classes of stock, designated as Class A and Class B. Owners of companies that have been privately owned and go public often create class A and B share structures with different voting rights in order to maintain control and/or to make the company a more difficult target for a takeover. BREAKING DOWN 'Class of Shares' Class of shares can also refer to the different share classes that exist for load mutual fund. There are three share classes (Class A, Class B and Class C) which carry different sales charges, 12b-1 fees and operating expense structures. Whether referring to different share classes of a company's stock or the multiple share classes offered by advisor-sold mutual funds, both cases refer to different rights and costs owned by holders of each share class. Mutual Fund Share Classes Advisor-sold mutual funds can have different shares classes with each class owning a unique sales charge and fee structure. Class-A mutual fund shares charge a front-end load, have lower 12b-1 fees and a below-average level of operating expenses. Class-B mutual fund shares charge a back-end load and have higher 12b-1 and operating expenses. Class-C mutual fund shares are considered level-load - there's no front-end load but a low back-end load applies, as do 12b-1 fees and relatively higher operating expenses. The back-end load, known as a contingent deferred sales charge (CDSC) may be reduced or eliminated depending on how long shares have been held. Class-B shares typically have a CDSC that disappears in as little as one year from the date of purchase. Class-C shares often start with a higher CDSC that only fully goes away after a period of 5-10 years. Preferred Class of Shares Investors sometimes opt for an investment in preferred shares, which function as a cross between common stock and fixed income investments. Like common shares, preferred stock has no maturity date, represents ownership in the company and is carried as equity on the company's balance sheet. In comparison to a bond, preferred stock offers a fixed distribution rate, no voting rights and a par value. Preferred shares also rank above common shares in a company's capital structure. Therefore, companies must pay dividends on preferred shares before they pay dividends for classes of common shares. In the event of liquidation or bankruptcy, preferred shareholders will also receive their payment before holders of common stock.
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