What Is the Difference Between Class A, B and C Mutual Fund Shares?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

If you're new to the world of mutual fund investing, you might be surprised to learn that every modern mutual fund can be classified according to its so-called "share class." In the United States, there are three principal types of mutual fund share classes: A, B and C shares. As you look for attractive funds, you'll need to pay close attention to these three categories. While its share class isn't necessarily an indicator of a given fund's quality, this characteristic could be a key determinant of its potential returns. If you're looking to preserve your wealth and maximize your returns, you should take a moment to develop a working knowledge of A, B, and C shares.

Class A shares have several distinct characteristics. They generally come with "front-end load fees" of up to 5 percent. These fees are calculated as a percentage of your initial investment in the fund and subtracted from your principal at the point of sale. As such, they may reduce your short-term gains by a substantial amount. However, these fees are usually offset by lower ongoing maintenance fees and discounts for high-value initial investments. If you invest more than $25,000 in a Class A fund, it's likely that your front-end load will be reduced by 25 to 50 percent.

Class B shares are notably different than Class A shares. Although they lack front-end fees, they typically require investors to pay substantial "back-end load fees" upon redemption. Like the front-end fees on Class A shares, these back-end assessments can reach 5 percent of the fund's total balance. If your investment in the fund has appreciated, these fees can quickly become expensive. However, Class B shares often convert into Class A shares after a pre-determined amount of time. As such, their back-end loads tend not to be overly painful.

Class C shares have some clear benefits. They're especially useful for individuals who wish to ride their shares for a quick profit and sell them within a year or two. Class C shares don't require investors to pay front-end loads and may charge discounted back-end loads of 1 percent or less. In fact, some Class C funds might not charge any back-end fees at all. To compensate for this deficiency, Class C shares generally feature high ongoing maintenance fees and expense ratios. Unlike Class A and B shares, Class C shares can't be converted and may be difficult to redeem.

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