Question

You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 2% total annual fees, and a 2% back-end load on Class B shares. If you plan to sell the fund after 4 years, which is a better choice, Class A shares or Class B shares?  Assume $100 is invested, and assume a 10% annual return before expenses.

Answer 1

	Class A Shares	Class B Shares
Investment	$100.00	$100.00
Front-end Load (a)	3.00	0
Return @10%
Year 1 end return	$110.00	$110.00
Annual Fees at year 1 (b)	$1.10	$2.20
Year 2 end return	$121.00	$121.00
Annual Fees at year 2 (c)	$1.21	$2.42
Year 3 end return	$133.10	$133.10
Annual Fees at year 3 (d)	$1.33	$2.66
Year 4 end return (g)	$146.41	$146.41
Annual Fees at year 4 (e)	$1.46	$2.93
Back-end Load (f)	$0.00	$2.93
Total Fees (h) (a+b+c+d+e+f)	$8.11	$13.14
Total Return after Fees (g-h)	$138.30	$133.27
	Class A Shares	Class B Shares
Investment	$100.00	$100.00
Front-end Load (a)	3.00	0
Return @10%
Year 1 end return	$110.00	$110.00
Annual Fees at year 1 (b)	$1.10	$2.20
Year 2 end return	$121.00	$121.00
Annual Fees at year 2 (c)	$1.21	$2.42
Year 3 end return	$133.10	$133.10
Annual Fees at year 3 (d)	$1.33	$2.66
Year 4 end return (g)	$146.41	$146.41
Annual Fees at year 4 (e)	$1.46	$2.93
Back-end Load (f)	$0.00	$2.93
Total Fees (h) (a+b+c+d+e+f)	$8.11	$13.14
Total Return after Fees (g-h)	$138.30	$133.27

Since Class A gives more returns ($138.30) as compared to Class B ($133.27).

Hence, Class A is a better mutual fund as compared to Class B Mutual fund as it gives more returns