What are Clean Shares?

Today, there are more options than ever when it comes to mutual funds. From low-cost index funds to individual stocks, there’s something to match every investment style and taste. But, it can be difficult to know which investment strategies will give you the best returns without taking too much risk.

This article explains clean shares and why they may be the best choice for your portfolio, as well as how you can use clean shares mutual funds to grow your money quickly and safely.

What are clean shares?

Clean shares refer to shares of mutual funds, such as exchange-traded funds (ETFs) and index funds. A clean share does not carry embedded expenses like most traditional mutual fund products. The expense ratio is lower than most traditional products and is transparent.

The process of purchasing clean shares is entirely transparent. In some cases, you may even receive a dividend from your clean shares without doing anything but owning them. Overall, it’s an easy way to invest in stocks on a professional level without losing much money in the process.

Clean shares are mutual funds that are designed to have low fees. This is important because stock market investors are better off when they pay fewer fees or fund costs. They include sales charges, management fees, and operating expenses. It’s because of these lower fees that many clean shares have outperformed other comparable mutual funds over long periods.

Clean shares also give you a chance to focus more on your individual investing goals rather than any political leanings of a company manager. The most popular type of clean share is called an index fund. An index fund tracks a specific financial benchmark or index. There are thousands of indexes out there for different kinds of assets such as stocks, bonds, and commodities such as gold and oil.

If a clean share focuses on following an index it will do so with strict rules in place around diversification, quality of holdings, and how much money managers can invest in stocks versus cash reserves, among others.

How do clean shares work?

A mutual fund is an investment vehicle that allows you to pool your money to purchase stocks, bonds, or other securities. A clean shares mutual fund involves not only purchasing stock in publicly traded companies but also buying clean shares. They are securities issued by privately held companies whose ownership rights are not restricted by law.

The ease of trading clean shares versus common stock makes these investments appealing for both retail and institutional investors alike. This ability to be listed on a major stock exchange helps reduce their cost compared to traditional private equity investments. If investing directly in clean shares was already more accessible than investing directly in privately held companies, then developing a separate fund solely for these types of assets helps level the playing field even further.

This means that any investor can easily invest in clean shares through one single avenue—an option previously unavailable without specialized knowledge of how to find or make deals happen. Clean share funds help facilitate access to high-value deals not otherwise available to smaller, retail investors interested in clean shares over corporate debt instruments like convertible bonds.

Benefits of Clean Shares

The biggest benefit of clean shares is being able to spread your investment risk over a greater number of securities. By owning many different individual stocks, you can decrease your exposure to any single company’s poor performance. This also diversifies your investment portfolio with less work, since clean shares are packages that contain many individual stocks selected by professional analysts based on current economic trends and industry conditions.

For instance, if you owned 100 different companies directly, it would be difficult to monitor all their quarterly reports. If you own one security that represents 100 individual holdings as a package, monitoring those holdings becomes very easy through reports generated from one source.

How can you start investing in clean shares?

Many mutual fund houses simply buy and sell these stocks for their investors, with little additional cost. If you want to learn more about clean shares and how they can help grow your portfolio, contact your financial advisor or IIFL who specializes in investments today!

Frequently Asked Questions

What Kind of Fees Come With Each Share Class?

Share classes of mutual funds and ETFs typically come in three flavours: Class A, B, and C. Class A shares carry a front-end sales charge (FSC) and a deferred sales charge (DSC). Class B shares carry an FSC but no DSC. Class C shares don’t carry any sales charges.

Most fund companies have different share classes for their actively managed funds vs. their index funds. Index funds tend to offer only Class C shares. Other firms might not split out their actively managed funds by share class, making it hard to tell which you are investing in until after you’ve invested your money.

If an investor buys one type of share class and then decides they’d prefer to invest in another, they will generally pay two sets of fees—one when selling an existing position at a loss or gain and another when purchasing shares at net asset value (NAV).

What is the Bottom Line in Clean Shares?

A clean share does not employ leverage. Therefore, clean shares carry lower fees than other investment vehicles like leveraged exchange-traded funds (ETFs). Their capital gains distributions consist solely of net realized capital gains. They avoid paying income taxes on what would otherwise be short-term or long-term capital gains taxed at ordinary income tax rates.