What Is a B-Share?
A B-share is a class of shares offered in a mutual fund that charges a sales load. A B-share is one type of share, the other two being A-shares and C-shares. Each share comes with its specific fee structure when purchasing or redeeming shares in a mutual fund.
- A B-share is one type of class of shares offered in a mutual fund that charges a sales load. The other common share classes are A-shares and C-shares.
- With B-shares, an investor pays a sales charge when they redeem from the fund, known as a back-end sales load or a contingent deferred sales charge (CDSC).
- The CDSC decreases over time, and after a certain period is eliminated, converting B-shares into a type of A-share.
- B-shares typically have higher expense ratios than A-shares.
- In addition to sales charges, B-shares also incur operating expenses, known as 12b-1 fees, for marketing and distribution.
Mutual funds offer many share classes but the three most common are A-, B-, and C-share classes. These classes all represent a similar interest in the mutual fund but will differ in the fees and expenses charged to the investor.
The fees and expenses in a mutual fund are paid in two ways: directly or through fund assets. Sales charges and redemption fees are typically paid directly by the investor whereas operating expenses, such as marketing and distribution, are taken out of fund assets.
Each retail share class may have different expense ratios, however, usually only B-and C-share classes will be charged 12b-1 distribution fees, which increase their total expense.
B-Shares Fee Structure
Class B shares do not charge a front-end sales load like A-shares but are characterized by a back-end sales load structure, also known as a contingent deferred sales charge (CDSC). With back-end load charges, an investor incurs a fee when they exit the fund rather than when they join, so all of their funds are invested when they first purchase shares.
The CDSC is typically only applied if you sell your shares within a specific time frame, usually within six years of purchasing them. The CDSC declines the longer you hold the shares and is eventually eliminated, and after a certain period after elimination, usually two years, Class B shares convert to Class A shares, which offer investors the benefit of a lower annual expense ratio. These sales loads are separate from the operating expenses of a fund. Full details on a fund’s sales load structure will be included in its prospectus.
As a retail share class, B-share operating expenses are subject to 12b-1 fees. 12b-1 fees compensate intermediaries and distributors for marketing and selling retail funds. These fees can often be higher for B-shares since they do not require front-end loads and may have commission fees that decrease over time. As a result, B-shares often charge one of the highest total expense ratios. 12b-1 fees are not direct charges but are taken from fund assets.
In addition to 12b-1 fees, investors in retail share classes are also charged standard management and other operating expenses. Management and other expense fees are usually the same across all share classes.
When to Choose B-Shares
As an investor, you will have the choice of which shares you'd like to purchase, A, B, or C, or any other that might be offered by the mutual fund. The first step is to actually determine whether to invest in a load or no-load fund.
If you are an experienced investor who understands the financial markets well and doesn't need financial advice, then a no-load mutual fund is your best option; you will save a significant amount of money that can be used for investing instead of being paid as a commission.
A load mutual fund will apply when you need a financial expert to make financial decisions for you, hence the sales charges that you are paying. If you plan to hold your shares for five years or more, B-shares will be your best option. In this scenario, you avoid the front-load charge that A-share investors incur, and over time your back-load charge will decrease the longer you hold your B-shares.
The important item to check here is the expense ratio for the B-shares. Make sure it is reasonable and not significantly higher than the expense ratio for the A-shares. If it is, you might save money in the long run by choosing A-shares, even if you have to pay a sales charge upfront.