Investment Companies - Share Class

Classes of Shares
Most open-end investment companies offer several classes of fund shares. The most common examples are A, B and C shares, although some fund families offer R and F shares for special categories of investment such as college savings plans or employee retirement shares.

Share classes differ primarily in the way in which their sales charges and distribution charges - that is, loads and 12b-1 fees - are assessed. Although the specifics of the different classes sold by each fund family vary widely depending on the fund, most funds offer the share classes listed below.

  • Class A Shares: Class A shares usually have front-end loads. Those investors purchasing larger numbers of shares can usually take advantage of reduced sales charges at defined intervals, known as breakpoints. These shares also have smaller 12b-1 fees.
  • Class B Shares: Class B shares come with back-end loads (CDSCs), so investors do not pay front-end loads. They only pay a sales charge if the shares are redeemed within the CDSC schedule; otherwise, the sales charges are limited to the 12b-1 fees, which are usually higher than those of other share classes. Once the CDSCs are reduced to zero, these funds convert from B shares to A shares.
  • Class C Shares: Class C shares usually charge a level load that is equal to a stated percentage of the fund's assets . This sales charge will be assessed by the fund for either a stated period of time such as 3-5 years or for the entire holding period

The article, The ABCs of Mutual Fund Classes, contains useful information about the pros and cons of each type of mutual fund share.

  • Other Share Classes: For other special types of investors, such as employees of broker-dealers, 529 college savings plan investors, institutional investors or investors with fee-based accounts, mutual fund companies offer a number of different share classes that take into account the initial purchase size and type of investor. As a result, the initial sales charges and 12b-1 fees will differ for each share class.

Deciding What is Best
So, which share class is best for your client? This is one of the most important questions you will have to answer in your career as a Series 6 representative. As a rep, you must find out three things about the client:

  1. How much money does he/she plan to invest over the next 13 months?
  2. How long does the investor plan to own the mutual fund shares?
  3. Does he/she own any other mutual funds?

The importance of these questions will become more apparent as you read through the following sections.

Reduced Sales Charges/Quantity Discounts
Related Articles
  1. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  2. Professionals

    Who Needs to Take the Series 65?

    Most states require individuals to pass the Series 65 exam in order to act as investment advisors.
  3. Investing Basics

    How to Vet Financial Advisors Via BrokerCheck

    Many people research restaurants or movies, but few select brokers or financial advisors with much research. Here's how BrokerCheck can help.
  4. Professionals

    Career Advice: Financial Planner Vs. Stockbroker

    Read an in-depth review of a career as a financial planner as opposed to a career as a stockbroker, including how to decide which is best for you.
  5. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  6. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  7. Professionals

    Is a Google Robo-Advisor on the Horizon?

    It's possible that Google is looking to get into the robo-advisor business, either as a new venture or as a way to provide more benefits to employees.
  8. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  9. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  10. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Series 79

    A examination to ensure a candidate is qualified to become a ...
  6. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  1. Do financial advisors need to pass the Series 7 exam?

    The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
  2. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  3. Do financial advisors need to be approved by FINRA?

    The term "financial advisor" can refer to a couple of different roles. It most often refers to a broker-dealer or an investment ... Read Full Answer >>
  4. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
  5. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
  6. Why is the Nasdaq more heavily weighted to tech stocks than other stock exchanges?

    The Nasdaq became the world's first electronic stock exchange at its inception in 1971. The exchange's dedication to advancing ... Read Full Answer >>
Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!