Reclassification

In the financial world, “reclassification” refers to moving a mutual fund from one class, or category, to another.

There are thirty-two million reasons why a mutual fund might be reclassified. That’s probably an exaggeration, but...there are a lot.

For example, let’s say we’re invested in a back-end load fund, which means we have to pay our broker a 4% fee when we redeem the shares. The manager of the fund decides this whole back-end load thing isn’t really working for her firm, so they decide to reclassify it as a front-end load fund, which means we pay a fee when we purchase shares instead of when we sell them.

Reclassifications can be triggered by a number of things, ranging from changes in the economy to an individual investor’s investment account balance. The goal is to make sure that the fund is performing as well as it can, both for the investors and for the firm managing the fund.