What Are Mutual Fund Class D Shares?

Definition & Examples of Class D Mutual Funds

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A mutual fund class D share is a less common type of mutual fund share that usually doesn't have a front- or back-end transaction fee. Because of its lower costs, it's a good investment option for do-it-yourself investors.

When you see the capital letter D at the end of the mutual fund's name, it means you are looking at the D class of shares. But if you're like most investors, you may not know exactly how D shares can be beneficial or if you should consider other share classes of mutual funds. Learn more about how class D shares work and when you might want to invest in them.

Key Takeaways

  • Mutual fund class D shares are types of shares that do not typically have an upfront or back-end transaction fee.
  • They're not as widely available as Class A, B, or C shares but they are a good option for DIY investors.
  • You can usually find them for sale from major investing firms with a D at the end of the share name.

What Are Mutual Fund Class D Shares?

Class D mutual funds can be similar to no-load funds in that they are a mutual fund share class that was created as an alternative to the traditional and more common A-share, B-share, and C-share funds that are front-load, back-load, or level-load, respectively.

With investments, the "load' is the transaction fee, and the other term describes when it happens. So "front load" means the fee happens when you purchase shares, "back-load" fees happen when you sell, and "level-load" funds charge a percentage throughout the year.

The purpose of loads is to compensate an investment advisor for providing investment advice. Therefore the only time paying a load can make sense is if you are using an investment advisor. If you are a do-it-yourself investor, you should always try to avoid paying a load.

Most funds that are A-share, B-share, or C-share class are sold through a broker. Some mutual fund companies created the D-share class of funds to accommodate the demand for no-load versions of the more popular funds.

One of the most widely held D share mutual funds is PIMCO Real Return D. Compared to PIMCO Real Return A, PIMCO Real Return B, and PIMCO Real Return C, the D-share class is the only one with no load and it has the lowest net expense ratio. You'll find similar options through other major investment management firms.

How Mutual Fund Class D Shares Work

Class D shares are not as widely available as other classes and are often designed for the DIY investor purchasing shares online. Because there is usually no load, they are less profitable for brokers than other shares, so brokers won't sell them directly.

In most cases, no-load funds have lower average expense ratios than load funds and lower expenses generally translate into higher returns. This is because any expenses to manage the mutual fund portfolio come directly out of the gross returns of the fund.

Keep in mind that D share funds are not the same as load-waived funds, which are usually A-share funds where the front load is waived. Load-waived funds will have an "LW" at the end of the fund name.

Finally, mutual fund purists may not recognize a D-share fund as a true no-load fund, which does not have any share class letter or descriptor at the end of the fund name, but D shares normally do not charge any load. Sometimes they may charge a level load fee (for example, 1% per year), but that is not typical.

The type of mutual fund share that works best for you depends on your own investing goals and the size of your portfolio. If you do plan on doing some DIY investing, it's worth looking into Class D shares as an option.