Mutual Fund Shares (A, B, and C Shares)
Investors can purchase the same mutual fund shares in several ways. Shares are categorized into classes based on how the fund recovers sales charges and other expenses. A, B, and C shares are the most common classes and are described below. Funds may have other classes of shares, which the prospectus will describe.
A shares are sold at a public offering price of NAV + front-end load. The load comes off the top of the amount invested, reducing the amount of money available to buy shares. Thus, if an investor has $10,000 to invest in a mutual fund and there is a 5% front-end load, $500 will go to the broker selling the fund and only $9,500 will be used to purchase shares. A shares are most appropriate for accounts with a large enough investment to benefit from a breakpoint.
B shares are sold at the NAV with no up-front sales charge. Thus, the full amount of the investor’s money is available to buy shares. They are subject to a back-end charge when the shares are redeemed if they aren’t held for the number of years specified in the prospectus. B shares often convert to A shares if held for a time period also specified in the prospectus. The back-end charge is assessed on the appreciated value of the shares, so the reduction in price could be substantial. Annual maintenance fees (12b-1 fees) are higher for B shares than for A shares. B shares are more appropriate for accounts not large enough to reach breakpoints and for investors who intend to hold the shares for a long period of time.
C shares have no front-end or back-end sales charges, except for a 1% back-end charge if the investor sells them back to the mutual fund company within one year of making his purchase. Annual expenses are higher for C shares than for A and B shares. Thus, C shares are the most expensive for investors who are investing for long periods of time and are best for investors who do not want to hold the shares for much more than a year