When Can I Sell a Class B Mutual Fund?
Load mutual funds have several classes of shares. Class A shares have an upfront sales charge, typically 4 to 6 percent of the amount invested. Class B shares avoid the up front sales charge and all of the invested money goes to work. Class B shares have contingent sales charges that may apply when the shares are sold.
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Deferred Sales Charge
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The class B shares of a load mutual fund are purchased at the current share price or net asset value (NAV). The amount invested is not reduced by and fees or commissions. The class B shares do have what is called a contingent deferred sales charge (CDSC). The CDSC is a percentage of the dollar amount if you sell your mutual fund shares while the CDSC is in effect. For example, if the current CDSC level is 4 percent and you sell $10,000 worth of the fund, the fund company will keep $400 and you will receive $9,600.
CDSC Schedule
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The CDSC for most class B fund shares is a declining percent schedule that goes for 5 to 6 years after you invest in the fund. The Financial Industry Regulatory Authority (FINRA) website provides an example CDSC schedule. The deferred sale charge in the first year is 5 percent, 4 percent in the second year, 3 percent in years three and four, 2 percent for the fifth year and one percent in the sixth year after purchase. After six years there is no sales charge if shares of the class B fund are sold. The actual CDSC schedule of any class B mutual fund shares is provided in the prospectus of the fund.
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Selling Class B Shares
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You can call the broker who sold you the mutual fund and sell the shares at any time. If you sell during the CDSC period, the sales charge amount will be withheld from the proceeds of the sale and you will receive the balance. If you do not want to pay the sales charge, you must wait until the CDSC schedule period has expired. If you made additional investments in the fund after the initial purchase, the shares from the follow on investments will have their own CDSC schedule.
Other Investment Options
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If you want to sell your class B mutual fund shares because you are not happy with the performance, consider a fund exchange. The mutual fund family to which your fund belongs probably has a large choice of funds with class B shares. If you exchange into another fund in the same family, you will not be charged the CDSC and your purchase date for calculating the CDSC time period will remain the date of your initial investment.
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