“According to the newly released sales fee management regulations, after the fee reduction, the costs of Class A and Class C shares of funds are not significantly different. Is it still necessary to distinguish between Class A and Class C shares?”
—— Netizen: “Fan Park”
The Financial Times responds to the netizen:Recently, the China Securities Regulatory Commission (CSRC) revised and released the “Sales Fee Management Regulations for Publicly Raised Securities Investment Funds (Draft for Comments)” (hereinafter referred to as the “Regulations”), proposing multiple revisions including lowering sales fee rates and optimizing the redemption fee system, marking the beginning of the third phase of public fund fee reform. After the Financial Times published related news reports, a netizen asked: “According to the newly released sales fee management regulations, after the fee reduction, the costs of Class A and Class C shares of funds are not significantly different. Is it still necessary to distinguish between Class A and Class C shares?”To answer this question, we first need to understand the fee differences between Class A and Class C shares. The investment targets and operational methods of Class A and Class C shares of the same fund product are completely identical, but the fee models are different. Class A shares adopt a front-end fee (charging a subscription fee at the time of purchase), while Class C shares adopt a back-end fee (charging a sales service fee during the holding period). If we compare it to parking fees, Class A shares charge a one-time parking fee of 20 yuan upon entry; Class C shares charge 2 yuan per hour. This analogy can help us quickly understand the main differences between the two types of shares.Based on the characteristics of the two types of shares, in an investor’s investment, Class A shares can dilute costs over the holding period, better leveraging the compounding effect, helping investors effectively obtain investment returns; from a fee perspective, although Class C shares have relatively lower short-term entry and exit costs, the time costs of subscription and redemption will also limit the flexibility of funds. At the same time, the compounding of sales service fees for long holding periods of Class C shares and the redemption fees for short holding periods can erode investors’ returns.According to the “Regulations,” calculating the fees for Class A and Class C shares, if we calculate based on a commonly seen 40% discount rate in the market, purchasing a 100,000 yuan equity fund, if the holding period is one year or more, the fees for Class A and Class C shares converge; if the holding period is between 6 months and 1 year, Class C shares still have a fee advantage. It can be seen that even after the adjustment, Class C shares still have a rate advantage during a holding period of 6 months to 1 year, which can better suit investors with corresponding investment time requirements.However, for those using Class C shares to seize market fluctuations, industry insiders have stated that due to the time lag in fund subscriptions and redemptions, and the current market’s rapid industry rotation phenomena, investors often incur losses. This fee adjustment is also aimed at encouraging investors to hold long-term, better protecting investors’ interests.In fact, many revisions in the “Regulations” are intended to guide and promote investors to actively practice long-term investment and value investment concepts. For example, it is clarified that for investors holding equity funds, mixed funds, and bond funds for more than one year, no sales service fees will be charged; optimizing the redemption fee arrangements to promote a change from the past “heavy on initial offerings, light on holding” fund sales model, etc.It is worth noting that the draft released by the CSRC is a draft for comments, and the specific fee structure for publicly raised funds will need to wait for the revisions to be finalized before further disclosure.
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Source: Financial TimesReporter: Li ZiqinEditor: Liu NengjingEmail: [email protected]Follow the Financial Times public account for more exclusive news