Z-Share

A Z-share is a class of mutual fund shares that employees of the fund's management company are allowed to own. Employees may have the option to buy Z-shares. They are also used in employee benefit plans and offered as a part of compensation or through a reward package.

Z-shares are typically no-load funds which can make them an even more attractive investment for employees. They usually have no front-end or back-end fees. Generally they also have one of the lowest expense ratios. While Z-share investors will pay the same management and miscellaneous fund expenses as other investors, their expenses usually do not include distribution or service fees since they are bought and sold directly through the management company without the involvement of 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, employers may match the amount of shares purchased as a bonus for employees. Z-shares are held in employee benefit accounts. All Z-share transactions are managed by the fund company which provides reporting for the employees on the investments.

Other aspects of Z-shares are similar to the other share classes in the fund. Z-share assets are pooled by the fund for management and operational economies of scale. Open-end fund Z-shares must be transacted at the forward price, which is its next reported net asset value.

Overall, mutual fund companies structure their offerings to include Z-shares as a firmwide incentive. Z-shares are a valuable instrument that mutual fund companies can use in all types of employee compensation. They are also used broadly in employee benefit plans. Z-shares can be a valuable offering for employees considering long-term employment prospects. Companies also use Z-shares to support employee morale, loyalty and long-term career development.

Franklin Templeton is a prominent mutual fund manager offering Z-shares across nearly all of its mutual fund offerings. The Franklin Mutual International Fund (FMIZX) provides one example. This fund offers A, C, R, R6 and Z shares. The Z-shares have no front-end or back-end fee. The expense ratio is one of the lowest among all share classes at 1.17%. Management fees are 0.88% annually. They require no distribution and service fees which helps to keep the annual expense ratio down. The lower fees have helped the Z-share class to report the highest return since inception. For the period ending December 31, 2016, FMIZX reported an annual return since inception of 8.45%.