A mutual fund is a communal pool of money from investors that is used to collectively purchase investments; each shareholder owns a percentage of the investments in the fund. When you buy a fund, you may have to select the type of share class you wish to purchase. Share classes don't change the investments in the fund, but they do carry different sales charges. A Series F mutual fund is the way to buy certain funds through fee-based advisers.
A Series F mutual fund is a class of mutual fund that requires going through a fee-based adviser to make a purchase. This type helps to avoid a conflict of interest and does not involve commissions.
Load vs. No-Load Funds
Mutual funds are sold either with or without a sales charge, known as a "load." Loaded funds pay commissions to advisers, while no-load funds do not.
An F series mutual fund is a special type of loaded fund you can buy without paying a sales charge. F series funds are only available through fee-based advisers, not from commission-based advisers. Since F series funds do not pay commissions to advisers, they also come with lower annual fees.
Origination of Series F Funds
Series F mutual funds came to the investment world as a way to help avoid conflicts of interest. Traditional commission-based financial advisers have an incentive to steer investors towards high-commission products, as that is how they are paid. Fee-based advisers, on the other hand, make their money from annual fees, regardless of the number or type of products that investors buy. Since the adviser receives the same fee whether you buy the F series fund or another fund, it reduces the risk that the adviser is acting in his own best interest, instead of yours.
Other Share Class Types
No-load funds do not have share classes. You simply don't pay a commission on them, whether you buy or sell the fund. Loaded shares often have A shares, B shares and C shares.
An A share fund will charge you an upfront fee when you purchase it, while a B share fund will charge you a fee of up to 6 percent if you sell the fund, usually in the first six years after you buy it. C share funds typically charge an additional 1 percent per year in internal expenses, but they have no charges to buy or sell the fund.
Total Cost of F Shares
While an F series fund can cost you nothing in upfront fees, it can prove to be an expensive proposition over the long haul. Since your fee-based adviser most likely charges you a percentage of your total assets year in and year out, you are essentially paying an annual fee on the fund, albeit to your adviser and not to the fund company. While you may get overall value from your adviser that makes the annual fee worth it, you must include the cost when comparing your investment expenses with simply buying a no-load fund on your own.
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