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. Investing

    The ABCs Of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  2. Financial Advisor

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  3. Investing

    New Rule Prompts Some Active Management to Cut Fees

    American Funds has filed with the SEC to create a new share class with lower fees.
  4. Investing

    Investors: Your Fees Are Probably Too High

    The lower your fees, the higher your returns. Here's how to find out if you're paying too much for your investments.
  5. Investing

    What is an Asset Class?

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
  6. Investing

    ETFs vs. Mutual Funds: The Lowdown on Costs

    Confused about the full range of fees on ETF and mutual funds? Here's a quick guide on fees and expenses.
  7. Investing

    Looking to Buy Mutual Funds Online? Here Is How

    Learn how to buy mutual funds online; discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
  8. Small Business

    How Zuckerberg Will Control Facebook Forever (FB, GOOG)

    Zuckerberg has pledged his wealth for charity, which includes his Facebook stock ownership. Here's how he will still control the Facebook business forever.
  9. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center