What Are Mutual Fund Share Classes?
Mutual fund share classes are different ways you can pay the sales charge (commission) associated with the fund. Depending on the length of time you intend to own the mutual fund, the total commission you pay can be vastly different.
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A Shares
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A shares charge an upfront commission, usually around 5.5 percent of the amount invested. In exchange, the annual expense to hold the fund, known as the expense ratio, is lower. This share class is most appropriate for a long-term investor, or for a larger investment amount, in which case the sales charge is reduced.
B Shares
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B shares do not incur an initial sales charge but do charge a commission if the fund is sold within a certain number of years, usually five to eight. This sales charge, which is known as "back-end" because it occurs after a sale as opposed to during a purchase, usually declines in size for every year you hold the fund. After a specified period of time, B shares automatically convert to A shares, with their lower annual expense ratio.
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C Shares
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C shares generally charge neither an upfront nor a back-end sales charge, but in exchange have higher annual expense ratios. C shares are usually most appropriate with an investment time horizon of just a few years.
Other Share Classes
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Some mutual fund companies have their own variations on the typical share classes; for example, some "D shares" in the industry are like "C shares", except they charge a 1 percent upfront commission. However, the most prevalent classes across the industry remain the A, B, and C shares.
No-Load Funds
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No-load funds charge neither an upfront nor a back-end sales charge, and thus do not have traditional share classes. While some fund companies have internal designations for various fund types, to the general investing public they are known simply as "no-load" funds.
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