What do all those letters mean after mutual fund names – series D, class F, series I and so on?
I was afraid someone was going to ask that question.
Not being an expert on mutual funds – my portfolio consists largely of individual stocks and exchange-traded funds – I reached out to Dan Hallett, director of asset management with HighView Financial Group, to walk me through the mutual fund alphabet soup.
I quickly realized it would not be a short conversation.
“There is no uniformity” in how fund providers use letter designations, he said. “Some companies have their own convention that might be at odds with what most other companies do.”
Consider TD Mutual Funds. The letter I in its funds – TD Dividend Income I and TD Canadian Equity I, for example – refers to Investor Series. These are funds sold to retail investors.
“But with most other companies series I stands for institutional,” Mr. Hallett explained. Just to complicate things, some companies use the letter O to refer to institutional funds. It’s not clear what the O stands for, if anything.
At TD you can also buy e-series funds, which are low-fee index funds that can only be purchased online – that is, electronically. Similarly, RBC Direct Investing offers its clients a lineup of low-cost managed funds – called Series D – which are “tailor made for the self-directed investor,” RBC says.
Now, we move on to A series funds. “Typically it means funds sold by a financial adviser,” Mr. Hallett said. Such funds usually have an embedded trailer commission to compensate the adviser or dealer for providing service or advice. The trailer is usually 1 per cent for equity and balanced funds – or 0.5 per cent if the fund has a deferred sales charge, also known as a back-end load.
Even if you buy an A series fund through a discount broker that provides no advice, with few exceptions you’ll still pay the trailer commission.
Next up: F class funds.
“F is the only letter that is standardized,” Mr. Hallett explains. If you’ve read this far you may be thinking of another F word, but in this case F stands for fee-based. These funds have the trailer fee stripped out because they are designed for accounts where the adviser charges a separate fee – usually 1 to 1.5 per cent – of the assets.
T series generally refers to funds that offer a purported tax advantage. These funds often have a high, fixed distribution – say 6 or 7 per cent annually – that includes a portion of return of capital or ROC. ROC is not taxable – it is subtracted from the adjusted cost base of the units, which affects the capital gain or loss when the units are ultimately sold. But in many cases the tax benefits are illusory, Mr. Hallett said.
Then there are corporate class funds, which are structured as a corporation instead of a trust. One benefit of the corporate structure is that investors can switch between funds in the same family without triggering capital gains tax.
“And then to make things really fun, because it’s not confusing enough, you’ll have corporate class T – a corporate class version that pays out a fixed distribution,” he said. “There are other combinations, such as FT.”
Don’t expect fund companies to adopt a standardized letter convention any time soon. There have been efforts to do so in the past, but the industry has always balked because it would be too costly to change all the prospectuses and marketing materials.
Still confused? Don’t feel badly: Even a fund veteran such as Mr. Hallett is occasionally puzzled by some of the letters he comes across.
“I’ll be looking at a fund and I’m like, what the heck is series P? … what is series W?”
Another column, perhaps.