What Is a Z-Share?
Let me tell you directly: a Z-share is a class of mutual fund shares that you, as an employee of the fund's management company, are allowed to own. You might have the option to buy these Z-shares, and they're often used in employee benefit plans, offered as part of your compensation or through a reward package.
Key Takeaways
Understand this: Z-shares are the class of mutual funds that employees like you at the fund's management company can own. Typically, they're offered as part of your benefits packages, and some employers will even match the number of Z-shares you purchase. They can be a valuable offering if you're considering long-term employment prospects. While you'll pay the same management and miscellaneous fund expenses as other investors, Z-shares typically don't charge any front-end or back-end fees.
How Z-Shares Work
Z-shares are typically no-load funds, which makes them an even more attractive investment for employees like you. They usually have no front-end or back-end fees and generally one of the lowest expense ratios. You'll pay the same management and miscellaneous fund expenses as other investors, but your expenses usually don't include distribution or service fees because you buy and sell them directly through the management company without an intermediary.
Similar to stock options and stock incentive grants, mutual fund companies offer Z-shares as compensation or through a reward package. In some cases, your employer may match the number of shares you purchase as a bonus. You hold Z-shares in employee benefits accounts, and all transactions are managed by the fund company, which provides reporting on your investments.
Other aspects of Z-shares are similar to the other share classes in the fund. The assets are pooled by the fund for management and operational economies of scale. For open-end fund Z-shares, you must transact them at the forward price, which is the next reported net asset value.
Overall, mutual fund companies structure their offerings to include Z-shares as a firm-wide incentive. They're a valuable instrument that companies can use in all types of employee compensation and broadly in employee benefit plans. Z-shares can be a valuable offering for you if you're considering long-term employment prospects. Companies also use them to support employee morale, loyalty, and long-term career development.
Franklin Templeton Z-Shares Example
Take Franklin Templeton, a prominent mutual fund manager that offers Z-shares across nearly all of its mutual fund offerings. The Franklin Mutual Shares Fund (MUTHX) is one example. This fund offers A, C, R, R6, and Z shares. The Z-shares have no front-end or back-end fees for employees.
The expense ratio is also one of the lowest among all share classes at 0.81%, and its annual 12b-1 fee is 0%. Because this fund doesn't require any distribution and service fees, it helps keep the annual expense ratio down. These lower fees have helped the Z-share class report high returns since inception.
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