Understand the Different Mutual Fund Classes
Some mutual funds, known as ‘multi-class funds” offer investors more than one “class” of shares to choose for investing. While each class represents the same level of interest in the fund’s portfolio, they differ in how investors are charged sales and distribution fees. Under the multi-class structure, investors can choose a fee and expense structure that best suits their own investment needs. Although mutual funds companies might divide investor options into seven or more options, there are three primary mutual fund classes: A, B, and C.
A Description of the Three Primary Mutual Fund Classes
Class A Shares: Investors in Class A shares are usually charged a front-end sales fee (known as a “load”) which is built into the fund share price. Many funds offer Class A investors discounts (also known as “breakpoints”) on these fees if the initial investment exceeds some specific threshold or if the investor owns shares in another of the company’s funds. Class A shares typically have lower 12b-1 fees (the fund’s annual marketing or distribution fee) than the other fund classes.
Class B Shares: Class B shares offer investors the opportunity to defer sales charges to the “back-end” and are often recommended for investors with a relatively long-term investment timeframe or for those investors with limited capital. Class B shares do not usually offer breakpoints on the back-end fees and have higher expense ratios than Class A or C shares.
Class C Shares: Class C share investments usually have smaller front-end sales fees than Class A or may have no front-end charge at all. Class C shares also have a minimal back-end fee or the back-end fee may be removed if the shares are held for more than one year. Class C shares will, in most cases, have the highest fees associated with ownership, which can reduce the overall performance of the investment.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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Unfortunately, jumping from one winning fund to another is a recipe for disaster. Funds Investing
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