Investing Advice

Mutual Fund Share Classes

As you become familiar with mutual funds and their prospectuses, there is constant reference to "A" shares, "B" shares etc. Although A, B, and C are the common ones, Fidelity also has T shares, Putnam M shares, and Fortis also has H shares. You can even find Y and Z shares.

Until 1986, all mutual funds were either sold with a sales charge called a front-end load, or purchased directly from the fund company without a salesman's commission, and then called a no-load fund.

In the late 1980's various fund groups began adding other fees beyond the usual overhead charges and management fees (the fund company has to make a profit too).

Mutual funds received authorization to charge fees to cover additional marketing costs. Called a 12b-1 fee, this money can be used to pay salespeople such as financial advisors and insurance agents. If the fund keeps the 12b-1 fee at .25% or less, they can still call themselves "no-load" (some charge as much as 2.25%). Here are the usual types of load funds:

  • Class A shares charge investors a front-end load, usually 4-5%

  • Class B shares charge no up-front commission, but charge redemption fee if the shares are redeemed within 5 years, usually 3-5% if redeemed the first year. Most class B shares also charge a 12b-1 fee, and can be converted to class A (with no 12b-1) in the sixth year.

  • Class C shares charge no up-front or back-end load, and usually no redemption fee if you hold the shares for one or two years. Class C shares generally carry the highest 12b-1 fee, and cannot be converted to class A. They tend to just charge you the highest fees forever.

There may also be other classes of shares with different combinations of fees. These would be are detailed in a fund's prospectus.

There is nothing wrong with buying your fund shares through a broker or financial advisor as long as you understand how much you are paying and still fell the fund is the right one for you.

If you are an educated investor and do your own research, you will usually buy a no-load fund, as there is then no reason to pay a sales commission.

Other Stock Market Basics Topics:

  1. Mutual Fund Advantages
  2. History of Mutual Funds
  3. NAV
  4. Dollar Cost Averaging
  5. General advice about choosing a fund
  6. Mutual Fund Ratings
  7. Evaluating Mutual Fund Investment Risk
  8. Mutual Fund Share Classes
  9. Mutual Fund Fees
  10. The Mutual Fund Prospectus
  11. How important is the manager's length of experience?
  12. Why is the prospectus hard to understand?
  13. Mutual Fund Annual Report
  14. Comparing your fund to the competition
  15. Comparing funds on an after-tax basis
  16. Average Return on Investment
  17. How Not to Pick a Mutual Fund
  18. Cashing in Your Fund
  19. When to Sell Your Fund
  20. Mutual Funds and Asset Allocation
  21. When to get started with a mutual fund
  22. Types of Mutual Funds
  23. Value Stock Funds
  24. Growth Stock Funds
  25. Small and Micro-cap Stocks
  26. Mid Cap
  27. Large Cap Companies
  28. Income Stock Funds
  29. Mutual Fund Index
  30. Enhanced Index Funds
  31. Sector Mutual Funds
  32. Stock Market Sectors
  33. Defensive Stocks
  34. International Funds
  35. Real Estate Mutual Funds
  36. Socially Responsible Funds
  37. Balanced Funds
  38. Tax-Efficient Funds
  39. Bond Convertible Funds
  40. Junk Bond Funds
  41. Mixtures of stock types
  42. Closed End Funds
  43. Exchange Traded Funds (ETF’s)
  44. Stock Picking Strategy - Picking your own stocks?
  45. Fund names, and what they really invest in
  46. How to get started
  47. Where can I start investing with no money?

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