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. 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 (contingent deferred sales charges (CDSCs)). Investors do not pay front-end loads, and 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 come with a load that is equal to 1% of the fund's assets if they are redeemed within the first year to 18 months. These shares also have higher annual 12b-1 fees than A shares; typically, they are equal to 1% or more of the net assets.

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.


Breakpoints

Related Articles
  1. Investing

    What is the Importance of a Share's Class?

    The meaning of share classes varies, depending on the investment vehicle.
  2. 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.
  3. Investing

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  4. Retirement

    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.
  5. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  6. Investing

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  7. Financial Advisor

    What's Behind So Many Mutual Fund Share Classes?

    Despite the confusion they create, the number of share classes offered by mutual fund families will most likely continue to grow. Here's why.
  8. 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.
  9. Investing

    Are Mutual Funds Doomed?

    Decreases in mutual fund classes and the growing use of ETFs means the future of mutual funds will be anything but smooth.
  10. Investing

    12b-1: Understanding Mutual Fund Fees

    Many mutual funds charge investors a 12b-1 fee to pay for marketing and promotion expenses.
Trading Center