The ins and outs of fund classes

To understand Fund Classes an individual must understand the difference between regulation and deregulation. The South African financial planning industry is very well regulated and is in fact considered one of the most regulated industries in the world.  

Prior to 1998, Fund Classes we're regulated in the R-class:  the R-class was used by individuals as well as institutional investors. One simple regulation in the R-class was that fees could not exceed 1.14%.  

This created inflexibility for Fund Managers as they would question the cost of managing a fund and the implications if costs increased. Now, with the new Fund Classes, Fund Managers can charge different service fees.

 Any funds invested before 1998 have stayed in the R-class, unless the Fund Managers have indicated differently. Any funds invested after 1998 have been placed into the new Fund Classes.

Fund Classes are now presented in the form of A-class to F-class.

A-class is the retail investor or individual investor; B-class is the institutional investor and C-class is the LISP platforms.

 Naturally an institutional investor will receive lower fees as the minimum investment is R10 million per annum.

 An interesting thing to note is that A-class and C-class are deregulated, which means Fund Managers can change class at any time although they must give the retail investor a minimum of 3 months’ notice.

Here is a basic guideline to follow however, it must be noted that the Fund Class lettering and numbering depends on the Fund manager in question.


R-class: regulated class where fees may not exceed 1.14%

A-class default class for individual investors

B-class: minimum R10 million investment for institutional investors

C-class: LISP allow for greater range of investment companies
 

So how does an investor determine which Fund class to use in an investment?

Let's look at the Stanlib Income Fund vs the Stanlib Balanced Fund. The income fund was launched in April 1987, which is obviously prior to 1998 and sits in the R-class.

We know that the fees in the R-class cannot exceed 1.14%, so moving forward investors can be very confident on how the fees of this fund have been structured.

The retail class of the Balanced Fund, being A-class, was launched in 2000, which means the fund is deregulated and the Fund Manager can charge different service fees.

Keep in mind that the Balanced Fund has a different risk profile to the Income Fund, indicating that an investor should consider their risk profile before they consider what Fund class their investment should be in.