fund share classes
If you have owned shares in a class A mutual fund for many
years but have not put more money into it for a few years, when you do reactivate
it are you starting over with the fees (load)? -- Jackie Jumble
There's not an industry standard for classifying shares of
mutual funds, but Class A shares typically have a sales charge that is paid when
you invest in the shares. This is called a front load because the commission is
paid upfront. Front loads vary by fund but usually range from 3 percent to 5.75
percent with most ranging from 4.5 percent to 5.5 percent.
money coming into the fund would have this fee taken off the top when investing.
Resume investing in the Class A shares of this mutual fund and you'll pay the
front load on the newly invested funds.
Class B shares typically
have deferred sales charges. You pay the sales charge when you sell the fund,
and the amount of the sales charge declines each year. Often with Class B shares
there is no deferred sales charge if you sell the fund after owning it for five
to seven years.
Class C shares don't have a front load or
a deferred load; instead they charge what's called a level load. You pay a higher
annual expense with Class C shares, and part of that expense goes to compensate
the finance professional who sold you the fund. There can be a contingent deferred
sales load, or CDSL, if the shares are sold within a specified period. The CDSL
on C class shares is lower than that of the B-class shares.
thing to remember is that one way or another the finance professional is compensated
for his advice in selling you these shares. Class B and Class C shares have higher
annual expense ratios than Class A shares, so the finance professional can be
compensated from these annual fees. With the Class A shares the finance professional
is paid upfront, and you pay lower annual expenses.
Class B shares have a conversion feature, they can be converted to Class A shares
after the deferred fee drops to zero. Conversion allows you to reduce the annual
expense ratio on a long-term investment after the finance professional has been
paid. Class C shares are the most expensive for long-term investors.
class shares, often described as Class I, usually have lower annual expense ratios
and typically don't carry a sales load. Finance professionals selling institutional
shares do so through an account structure that compensates them in another manner.
don't have to buy mutual funds with sales loads. You can purchase no-load funds.
There are still annual expenses to consider, and unless you manage your own portfolio,
you will still have to compensate your financial adviser for the time spent in
helping you create and manage this portfolio. It's not a matter of good or bad,
just what's right for you.
The Securities and Exchange Commission
has a mutual
fund cost calculator that can help you compare the costs associated with holding
different classes of mutual fund shares.