What Are Class Inst Funds?
Institutional Class Mutual Funds: Class I, X, Y or Z
There a several different share classes of mutual funds. Most investors are familiar with A Shares, B Shares and C Shares but what are institutional mutual funds, the ones that have an I an X a Y or a Z on the end of the fund name?
Institutional Share Class Definition
Institutional shares of mutual funds, often labeled as "Inst" funds, Class I, Class X, Class Y or Class Z, are generally only available to large (institutional) investors with minimum investment amounts of $25,000 or more.
In some cases where investors pool money together, such as 401(k) plans, breakpoints can be met to use the institutional share class funds, which typically have lower expense ratios than other share classes. Therefore, the smaller everyday investor can gain access to the institutional class shares when a mutual fund company allows for exceptions in employer sponsored retirement plans, where there is an expectation that the high minimums will be met with all of the individuals (the employees contributing to their respective accounts) putting their money together to meet the minimums.
Should You Buy Institutional Class Funds?
In general, institutional class mutual funds are better than other share classes because the lower expense ratios translate into higher returns for the investors because the fund is not withholding as much money for the purpose of paying the operating costs of the mutual fund.
For example, the same mutual fund might have several different share classes available to investors. Let's say the B share version of the fund has an expense ratio of 1.00% but the Class I institutional share class has an expense ratio of 0.25%. If the fund has 10% total gain in any given year, the net return to B share investor would be 9.0%, whereas the return for the I share investor would be 9.75%.
Over time, this extra 0.75% advantage can mean thousands of dollars more to the investor.
What Is the Best Share Class for Most Investors?
It's not common for an individual investor to gain access to institutional share funds but there are plenty of high quality, low cost no-load mutual funds that can perform as well as or better than most institutional share funds.
No-load funds are often referred to as "investor shares" and do not always have a formal share class title. Therefore you won't often find a letter, such as A, B, C or I, at the end of the mutual fund name.
Index funds can be smart choices for do-it-yourself investors because they are often highly diversified and charge extremely low fees.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.