What Are Mutual Fund Class D Shares?

Learn the Definition and Basics of Class D Funds

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Should you buy mutual fund class D shares?. Getty Images

Have you seen mutual fund class D shares? When you see the capital letter 'D' at the end of the mutual fund's name, it means you are looking at the D share class of mutual funds.

Mutual Fund Class D Share Definition

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 either front-load, back-load or level-load, respectively.

For example, 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.

Should You Buy Mutual Fund Class D Shares?

As in the case of the PIMCO fund above, D shares can be a smart way for investors to buy mutual funds without paying the load expense. A mutual fund load is a fee charged for the purchase or sale of a mutual fund. Loads charged upon purchase of fund shares are called front-end loads and loads charged upon the sale of a mutual fund are called back-end loads or a contingent deferred sales charge (CDSC).

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. So if you are a do-it-yourelf 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.

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 the expenses to manage the mutual fund portfolio come directly out of the gross returns of the fund.

Also keep in mind that D share funds are not the same as load-waived funds, which are those that 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.

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.