A:

When checking for different quotes on mutual funds, you might see different prices for classes of mutual fund shares that seem to be holding similar or identical products. These different classes - 'A', 'B' and 'C' - all are characterized by their different load structures.

'A' shares generally denote a front-load charge. This load is generally fixed for the duration of the fund and will vary depending on the different types of mutual funds. Fund companies recognize that the front load is a deterrent to investors, so to sweeten the attractiveness of the fund, they may reduce the management expense ratios (MER). Thus, some funds claim that, even though you are paying a large fee up front, you will end up saving money if you decide to hold this fund for a long duration.

The 'B' shares normally are deferred-load funds. In many instances this deferred load will dissipate along a schedule so that the longer you hold the fund, the smaller the deferred load becomes. When the deferred fund no longer has back-end charges, it will normally be reclassified as an 'A' share. It may seem advantageous to purchase and hold the 'B' class until the load structure completely dissolves, but this is not necessarily the case. Fund companies may circumvent lost profits by charging a higher MER.

The 'C' shares are constant-load funds. Regardless of the number of years the fund is held, the load charge is present. Since this fund's load is lower than both the 'A' and 'B' classes, it generally also has a higher expense ratio to offset the fund company's lost revenue; furthermore, 'C' shares typically do not reclassify into 'A' shares, which means that the purchaser of these shares will be stuck paying the full load when he or she sells the fund.

Keep in mind that fund companies will denote their multi-class mutual funds differently, but the letters we refer to above are the most common classifications. When you are looking to purchase a new fund, it's definitely important that you understand the load structure and availability of different classes. Also, remember that loads don't automatically get you a higher return. In fact, most evidence suggests that no-load funds are almost always a better choice.

(To learn more about mutual funds and their fees, check out our Mutual Fund Basics Tutorial.)

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  1. Back-End Load

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  2. B-Share

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  4. A-Share

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