Mutual Fund Share Classes Defined

There is much confusion among mutual fund investors regarding various "share classes” that mutual fund companies create.  For many mutual funds, there are more than three share classes for each fund within a mutual fund family. In every case, a different share class represents a different method of calculating the fees in which mutual funds levy on investors.  The most common share classes are as follows:

Class A share mutual funds generally assess an upfront (one-time) commission that is paid to the broker (4.75% to 5.75% is the range).  In addition, there is a lower ongoing annual fee (12b-1 fees) that is paid to the broker to service the investment.

Class B share mutual funds do not charge an upfront load (commission), but rather have higher annual expenses and charge a contingent deferred sales charge (CDSC) if shares are sold within a certain period of time (usually 3 to 7 years).  When the CDSC period expires, Class B shares "convert” to lower cost Class A shares.  At the point when Class B shares convert to Class A shares, deferred charges are not assessed when the fund is sold.

Class C shares generally do not assess an upfront load, but will assess a 1% load if you sell the fund within one year.  After holding the fund for one year, there is no fee to exit the fund.  However, the ongoing internal cost of class C share mutual funds are generally higher than other share classes of mutual funds.

Class D and Class F share mutual funds are usually no-load mutual funds.  While no-load mutual funds do not charge "commissions” upon their purchase, there are ongoing expenses that are assessed to investors.  These ongoing expenses vary for each fund.  Class D and Class F share funds can be purchased at most discount brokerage firms through their "mutual fund supermarket” platforms.  Many D and F share class funds pay an annual 12b-1 fee to the brokerage firm (not the advisor that may recommend the fund). 

About Beacon Financial Strategies

Beacon Financial Strategies is a Registered Investment Advisory (RIA) firm, located in Raleigh, NC that specializes in providing comprehensive financial and investment advice to clients through a fee-only (no commission) framework.  Beacon’s investment philosophy is grounded on the tried and true premise of asset allocation, while also minimizing the investment and tax related costs that tend to reduce investor’s long term rates of return.  For more information, please contact Beacon Financial Strategies to request an introductory packet.