Mutual fund shares are divided into classes based on their fees and availability. The R-class shares of mutual funds are unique because they are available only through work-based retirement accounts. You cannot purchase them on the open market. Unlike some other popular share classes, R-class shares do not carry a sales charge. However, you should be aware of the annual expenses that they sometimes carry.
R-class shares target retirement-minded investors. In fact, they often are called retirement shares. R-class shares were created to provide a category of mutual fund shares tailored specifically to retirement accounts, offering characteristics that make it easy for retirement account service providers to include mutual funds in a portfolio. Investors with R-class shares in a mutual fund seek long-term growth because the investment is part of an account designed to provide income years into the future. Mutual funds that offer R-class shares typically also include several other classes of shares for investors to consider.
Institutions that offer R-class shares do not sell them directly to investors. Instead, these shares are sold solely through financial intermediaries. You invest in funds through third parties that provide employer-sponsored, defined-contribution retirement plans. The intermediaries handle purchases, sales and exchanges of R-class shares for investors. The types of retirement plans that have access to R-class shares include 401(k), 457 and employer-sponsored 403(b) plans. They also include profit-sharing and money-purchase pension, defined-benefit, nonqualified deferred-compensation, and health care-benefit funding.
Class R shares differ from some other classes of shares in the way fees are imposed on investors. R-class shares do not carry an initial or deferred sales charge, which contrasts with A- and B-class shares available to all investors. However, R-class shares carry annual expenses that may make them more expensive over a period of several years than shares with one-time costs but smaller annual expenses.
The fees you pay on R-class shares are tied to the costs of maintaining retirement accounts. These offset management and marketing costs, and they are distributed to the brokers, financial advisers, record-keepers and others involved in the fund. The Financial Industry Regulatory Authority regulates U.S. security firms and oversees the regulation of mutual fund share classes, ensuring fund providers offer shares that follow the restrictions placed on them.
Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.