What is a Mutual Fund Share Class

A mutual fund is a popular investment vehicle used by investors to reach their investment goals.  Some mutual funds will offer shares in different mutual fund classes.  A mutual fund share class is a type of classification system used by a mutual fund to show a share will have different fees, expenses, and other characteristics than a share found in a different mutual fund share class.  There are many different mutual fund share classes; however, popular mutual fund share classes are classes, A, B, and C.  By having a choice to invest in shares from different mutual fund share classes, investors can find the shares class that is most suited to meeting their investment needs.   

Investors investing in shares from Mutual Fund Share Class A usually invest for the long term.  According to SEC, class A shares will have 12b-1 fees.  12-b1 fees are merely marketing and selling fees.  12b-1 fees usually are within the range of .5 to 1 percent.  Class A shares have a front load.  Front load is a sales charge assessed at the time of purchase of shares.  Class A shares offer breakpoints to investors.  Breakpoint is a discount on front load assessed on shares that are purchased.  Investors receive breakpoint for large purchase of shares.  A few advantages offered by Class A shares are lower 12-b1 fees than some of the mutual fund share classes and breakpoints are offered to investors.  A drawback of investing in Class A shares of a mutual fund, it is usually requires a large initial investment.  Investors are also interested in investments in Class B shares.

Class B shares do not have front load sales charge; however, they have a backend load.  Backend load is sales charge assessed when shares are redeemed.  Backend load are gradually lowered the longer shares are held.  Over time usually six years, Class B shares will be converted to Class A shares.  Investors’ biggest drawback to invest in B shares is higher expenses than other share classes will be paid.  An investor should not expect a breakpoint, because they are not offered when Class B shares are owned.  An advantage of a Class B share, it does not require a large initial investment. 

Class C shares are for investors who wish to invest for the short term.  Class C shares like Class B shares will have a backend load.  The backend load usually about 1 percent.  Investors will be please to find out that the backend load is eliminated if they can hold shares for at least one year.  Fees for shares are more expensive than fees associated with Class B.  Unfortunately, the investors do not have breakpoints nor can shares be converted to a different mutual fund share class.

By knowing mutual fund share class, investors can predict how various expenses and fees will affect their return.  Its use can help investors to determine if they will receive a discount or breakpoint for purchasing shares.  Therefore, investors can immediately recognize the type of initial investment is required.  It is used to provide important investment information such as the benefits and drawbacks of each share class to investors.  The mutual fund share class allows an investor to invest in a mutual fund in manner that is best suited for their financial condition and goals.