Interactive Investor

How to pick the right share class: your no-nonsense jargon buster

Confused about whether to pick an ‘Acc’ or ‘Inc’ unit and how much you’ll be charged? Then rea…

31st January 2020 14:02

Rob Griffin from interactive investor

Confused about whether to pick an ‘Acc’ or ‘Inc’ unit and how much you’ll be charged? Then read our experts’ tips on getting it right

You have finally decided which investment fund to buy. Unfortunately, that is not the end of the story. You still have choices to make. What fund share class do you prefer? Would you like Inc or Acc units?

The fund management industry is well known for its use of jargon and acronyms, but getting to grips with the various terms and how they can affect your return is essential. For the first-time investor, these questions can seem overwhelming.

However, it doesn’t have to be tricky. Take confusion out of the equation with our jargon-busting guide to understanding share classes.

What are fund share classes?

Fund providers offer more than one type of share class in order to meet the needs of different investors. These are identified by the use of letters, such as A, R, Z and I, that are inserted within the fund’s name.

While all the classes of a particular fund will be invested in the same way, with the same overall objectives – other factors, such as the various charges being applied and minimum investment levels, can differ enormously.

There might also be separate share classes of a fund issued if it is investing in different currencies, such as euros or US dollars, while some may only be available to investors who are able to commit substantial amounts of money.

Investing more can mean paying less, points out Ben Yearsley, director of Shore Financial Planning.

“Different share classes are mainly about price and the ability to give a lower price to larger investors,” he explains. “Funds often have classes only open to investors with, say, £10 million to invest.”

Understanding the different share classes

Unfortunately there isn’t an accepted consistency when it comes to the letters used to denote the various share classes, according to Darius McDermott, managing director of Chelsea Financial Services.

“Different fund houses use different letters as there is no industry standard,” he explains. “Usually ‘A’ is for accumulation and ‘I’ is for income, then you get ‘R’ for retail. However, ‘I’ could also stand for institutional, so it is confusing.”

Some funds have individual classes for different distributors, for example investment platforms, depending on the discount the investment company has negotiated with them, according to Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“One investment platform may offer a class with one letter, while another will offer it with a different letter,” she explains. “It should be clear from the websites of these services which fund will suit you best, but if you’re in any doubt, call them and ask someone to talk it through with you.”

Therefore, letters appearing after a fund may bear no resemblance to the same letter on a fund from a different provider. They can only be used to compare – and differentiate – it from another share class of the same fund.

Take the example of UK-based Artemis, which manages around £27.5 billion of assets and offers a wide range of funds focused on the UK, Europe, the US and other regions. Investors can choose to buy directly from the fund group, via a financial adviser, or through a fund platform.

Most Artemis funds issue two different classes of units. Each of these has different investment minimums and charging structures.

The ‘R’ class has a low minimum investment but a higher annual charge. The ‘I’ class of the same fund, meanwhile, requires a minimum investment of £250,000 – comfortably above the scope of most private investors – but offers a lower annual charge.

What are Inc and Acc units?

You may have to choose Inc or Acc units. These stand for income and accumulation, and must be considered separately to the broader fund share class definitions. Your choice will dictate how the income generated by the fund is treated.

In the case of Inc units, income is paid out to fund holders as cash. This could provide them with a useful income stream. Acc units, meanwhile, are retained within the fund and reinvested. This enables the overall portfolio to grow.

However, don’t be put off if a fund only offers ‘inc’ units and you want it to roll up, points out Sarah Coles at Hargreaves Lansdown. “You can use an investment service to automate the reinvestment of income – there will just be a slight lag between it being paid and reinvested,” she adds.

Whether Inc or Acc suits you  better will depend on your investment goals. If you rely on receiving an income for day-to-day living costs, then opt for the former. If you don’t need the cash, you can go for accumulation and enjoy the benefits of compounding.

Compounding is the longer-term process whereby an investor eventually earns an income not just on their original investment, but also on the income being generated. It means your portfolio stands a chance of growing more over time.

How do you choose your fund share class?

You will need to investigate which options apply to your chosen fund. There is no one-size-fits-all advice when it comes to choosing between fund share classes as there are simply too many variables.

The first task is establishing where the fund is available. Does the fund’s provider deal directly with private investors? What deals are on offer from financial advisers and investment platforms? The costs involved will differ, points out Yearsley.

“If you buy direct from the fund provider, you won’t have to pay for platform administration or advice fees,” he explains.  “However, it won’t offer the fund within an ISA or SIPP.”

According to Martin Bamford at Informed Choice, the other main factors to consider when picking a share class are the initial and exit fees, ongoing charges, whether the minimum investment levels are suitable, and if it is available on different platforms.

“Some fund supermarkets platforms have negotiated special terms with fund providers, creating a new share class with specific charges, and these are only available on those platforms,” he adds. “These are sometimes referred to as ‘super clean’ share classes.”

Adrian Lowcock, head of personal investing at Willis Owen, agrees, adding:“Look for the class with the lowest charges as this makes a difference and will impact the returns you can expect to get. If it is available on a platform, then limits on minimum investments usually don’t apply as they will only allow you to invest if you are eligible.”

How have share classes changed?

The number of available share classes has grown since the introduction of the Retail Distribution Review (RDR) at the end of 2012. This regulatory overhaul introduced a new set of rules to ensure more transparency and fairness in the investment industry.

“It brought an end to ‘bundled’ charges within funds, where one charge would pay for fund management, advice and platform administration,” explains Bamford. “Share classes post-RDR are typically ‘clean’, which means they charge for fund management only.”

The cost of advice and any platform fees are charged separately to the investor, so they know how much each element costs. “The total cost of investing hasn’t changed, but clean share classes result in greater transparency around the charges,” he adds.

However, the importance of being in the right share class is often overlooked. Research by fund consultancy Fitz Partners reveals that 23% of money invested by ordinary retail investors in UK funds are still held in pre-RDR share classes that might pay trail commission to financial advisers. This proportion is falling as investors review their holdings, but it is something investors with older investments need to assess.

What investors should do largely depends on whether they receive ongoing advice for that payment.

“You can easily switch to a clean share class and turn off the commission payments, assuming you don’t receive any value for money paying the higher charges,” explains Bamford.

He also points out that the Financial Conduct Authority published some guidance on this issue that enabled fund providers to switch investors to clean share classes more easily.  

“However, the process for switching will depend on share class availability and whether the fund provider offers a better value option,” he says.

“DIY investors will need to be more proactive than advised investors, with the latter (hopefully) benefiting from an adviser who keeps fund charges under annual review.” 

Closed-ended funds and individual company shares

Choosing share types is more straightforward for investment trusts and buying individual company shares, according to Darius McDermott, managing director of Chelsea Financial Services.

“For closed-ended funds, you tend to get ordinary shares and then choose to take or reinvest income,” he says. “It is a lot simpler as there are fewer variations. With (individual) stocks, the only real choice of shares is if the company is domiciled in more than one country.”

Rathbone Income fund – how share classes differ

Rathbone I share-class

This is an unbundled share class introduced to meet the requirements of the retail distribution review. This share class is available through most platforms or through an independent financial adviser. 

Minimum initial investment:


Minimum additional investment:


Initial charge:


Ongoing charges:


Transaction costs:


Rathbone S share-class

This is known as a restricted share class because it is available at the manager’s discretion.

Minimum initial investment:

£100 million

Minimum additional investment:


Initial charge:


Ongoing charges:


Transaction costs:



Source: Rathbone Unit Trust Management

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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