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. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  2. Your Clients

    Events in 2016 That'll Alter Your Retirement Plans

    Retirement savers who are trying to see what lies ahead can expect these changes affecting their retirement plans in 2016.
  3. Term

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  4. Your Practice

    How Likely is a New Fiduciary Rule in 2016?

    New fiduciary standards for advisors working with retirement accounts are on the horizon. Will they become reality in 2016?
  5. Professionals

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
  6. Brokers

    Duck These Illegal Sales Tactics Used By Brokers

    Many unscrupulous brokers employ illegal swindling tactics to sell bad securities. Here are sales strategies that should indicate red flags to investors.
  7. Professionals

    Private Banker: Career Path & Qualifications

    Discover what kind of work private bankers do, and learn more about how you can develop the experience and qualifications required to work in the field.
  8. Financial Advisors

    Top Compliance Headaches for Financial Advisors

    Advisors who do not devote sufficient attention to compliance issues can find themselves in hot water with both regulators and their clients.
  9. Investing Basics

    How To Handle A Serious Dispute With Your Broker

    Find out what to do if you have a dispute with your broker.
  10. Professionals

    Hedge Funds and the Law

    Learn how hedge funds have gotten in trouble for illegal insider trading. Read about questionable high-frequency trading (HFT) strategies.
RELATED TERMS
  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. ...
RELATED FAQS
  1. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  2. Are variable annuities safe?

    As of October 2015, many life insurance companies, and those companies that sell variable annuities, have experienced economic ... Read Full Answer >>
  3. How are variable annuities regulated?

    The sale of a variable annuity is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center