Investor shares are mutual fund shares that are acquired by individual investors. These are different from institutional shares, which are mutual fund shares bought by businesses or some other type of institution. Typically, investor shares are purchased in smaller lots, and do not receive the same type of discounts on fees that are offered to institutional investors.
One of the main benefits associated with investor shares is that smaller investors can gradually accumulate an interest in the mutual fund, even if they do not have a lot of resources to devote to the task at one time. In some cases, the shareholders acquire interest via a mutual fund program offered by an employer. A fixed amount is withheld from the employee’s pay each period and set aside for the purchase of the investor shares. Over time, the amount of shares assigned to the employee increases. Assuming the accumulated shares increase in value over time, the employee builds a significant nest egg that can be called upon in later years.
In most situations, funds that offer investor shares for sale require some type of minimum purchase that is well below the amount required to be considered an institutional investor. This makes it possible for individual investors to gradually accumulate an interest in the mutual fund by purchasing additional shares from time to time. The type of shares made available to an individual investor may also be different from those offered to institutions, although many mutual funds make no distinction at this level. Instead, the difference between institutional and investor shares is the number of shares that are included in a single transaction.
The minimum required to purchase investor shares will vary from one mutual fund to another. In some instances, the minimum is based on a specific number of shares that must be purchased, regardless of the share price. At other times, the fund may require that the investor purchase a minimum dollar amount, with the number of shares being secondary. For example, Fund A may require that an investor purchase a hundred shares at a time, regardless of the price. Fund B may require a minimum purchase that amounts to $1,000 US dollars (USD), assigning as many shares as that minimum amount will buy.
Since investor shares are typically sold in smaller lots, there is usually no type of discount or break on the transaction fees. Depending on how the fund is structured, it may be possible to gradually accumulate enough of an interest in the fund to begin earning some sort of discount on those fees. For the most part, the amount of the fees are set to comply with any governmental regulations that are currently in place, and may also reflect a price schedule that is designed to make the fund more competitive with similar funds.
