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.)

RELATED FAQS
  1. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  2. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    The 4 Best T. Rowe Price Funds for Growth Investors in 2016 (TROW)

    Discover the four best mutual funds administered and managed by T. Rowe Price that specialize in investing in stocks of growth companies.
  2. Mutual Funds & ETFs

    The 3 Best T. Rowe Price Funds for Value Investors in 2016

    Read analyses of the top three T. Rowe Price value funds open to new investors, and learn about their investment objectives and historical performances.
  3. Mutual Funds & ETFs

    Top 3 Lazard Funds for Retirement Diversification in 2016

    Learn about Lazard Asset Management, its long history of strong performance and the top three Lazard funds to consider for retirement diversification.
  4. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  5. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  6. Investing Basics

    How liquid are Fidelity mutual funds?

    Review the liquidity features of mutual fund shares and an overview of Fidelity mutual funds. Most investors look for convenient access to their investments.
  7. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  8. Mutual Funds & ETFs

    Top 5 Wellington Funds for Retirement Diversification in 2016

    Discover the top five Wellington Management funds for retirement diversification in 2016, with a summary and performance details of each fund.
  9. Mutual Funds & ETFs

    3 Morgan Stanley Funds Rated 5 Stars by Morningstar

    Discover the three best mutual funds administered and managed by Morgan Stanley that received five-star overall ratings from Morningstar.
  10. Mutual Funds & ETFs

    Top 3 Voya Funds for Retirement Diversification in 2016

    Learn about Voya Investment Management's mutual fund offerings and the three Voya funds to consider for retirement diversification in 2016.
RELATED TERMS
  1. Green Fund

    A mutual fund or other investment vehicle that will only invest ...
  2. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  3. Consumer Staples

    Essential products such as food, beverages, tobacco and household ...
  4. Benchmark

    A standard against which the performance of a security, mutual ...
  5. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  6. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center