What Is a Mutual Fund Class Z?

Class Z shares are a mutual fund class; these shares can be purchased without paying an up-front commission. If you are new to investing, load funds charge up-front commissions and are bought through stockbrokers or advisers, and no-load funds do not have up-front commissions. Do-it-yourself investors typically gravitate to no-load funds and their lower cost structure.

Typically, Z shares are created as a result of fund companies merging. For example, Company A, which markets load funds, takes over company B, which markets no-load funds. The Company B funds now charge commissions and are part of Company A’s family of funds. Z share classes are created for the former Company B funds.

Investors who are invested in the no-load shares before the merger are put into Z-class shares. New investors cannot buy into these shares and must purchase A, B or C shares through a broker or adviser. You may also find that Z shares have lower expense ratios compared to load share classes. For details on the other share classes, see the fund prospectus. Many other fees may be involved.

A benefit to working for a fund company is that employees get to purchase shares at net asset value (NAV). Buying at NAV is the same as saying you didn’t pay a load or up-front commission. Employees, unlike new investors, get to invest in the fund through Z shares.

For most investors, Z shares do not really come into play. Ultimately, you can bypass the alphabet soup of share classes by sticking to no-load funds. It takes a little more effort, but it's well worth it. Various finance websites have mutual fund sections where you can start your research.