Does Mutual Fund Class Make a Difference?
By Kristi Vaughan
When buying certain mutual funds investors may be asked what class of fund they want: A, B, or C?
The difference comes in the way fees are charged. And, while it may not seem much at first, the end result could be a significant difference in investment returns. Which class is best for you often is determined by your investment goals.
The U.S. Securities and Exchange Commission offers a mutual fund cost calculator to help investors determine the actual cost of owing particular funds. In addition to fee information found in the prospectus, you also will need an estimate of the length of time you intend to own the fund.
Class A
Class A shares typically have a front-end load or a charge that is incurred when you buy the shares. The fees are charged as a percentage of the amount invested and sometimes can be lower if you are buying more shares.
Class B
Class B shares normally impose a contingent deferred sales charge, or back-end load that can decline the longer you hold your shares. Now, while this might seem to be a less expensive way to buy shares, it can pay to check what other fees are charged. According to the National Association of Securities Dealers Class B shares may have higher expenses than Class A shares. Additionally there may be a sales charge when the Class B shares are sold. If held for a long enough time, Class B shares often convert to Class A shares with lower operating expenses.
Class C
Class C shares, which often are used for asset allocation, do not charge a front-end fee but do typically charge higher operating expenses than Class A shares. Additionally there may be a sales charge if you sell within a certain period of time. If Class C shares are held for a long time, the costs could be higher than either Class A or Class B shares.
