Some mutual funds offer investors
different types of shares, known as "classes." Each class will
invest in the same "pool" (or investment portfolio) of securities,
but each class will have different fees and expenses and,
therefore, different performance results. Mutual fund classes let
investors pick a fee and expense structure that best fits their
investment goals, including the time that they expect to remain
invested in the fund.
Each of these classes may charge
a fee when you purchase shares of the fund, or when you sell shares
of the fund. These fees, known as “sales loads” or “sales charges,”
are generally used to compensate the investment professional who
sells you shares in the fund. Different classes may charge
different sales loads due to the classes having different
distribution arrangements and shareholder services.
Common Mutual Fund
Classes:
- Class A shares might have a front-end sales
load (a type of fee that investors pay when they purchase fund
shares). Class A shares might also have a 12b-1 fee (an annual fee
that covers the costs of marketing and selling fund shares),
although this fee would generally be lower than the 12b-1 fee for
certain other classes, which may make Class A shares a good option
for longer term investments.
- Class B shares might not have any front-end
sales load, but might have a contingent deferred sales load (CDSL)
(a type of fee that investors pay only when they redeem fund
shares) and a higher 12b-1 fee. The CDSL typically decreases to
zero if the investors hold their shares long enough (e.g.,
often six to eight years). Class B shares also might convert
automatically to a class of shares with a lower 12b-1 fee if held
by an investor for long enough.
- Class C shares might have a 12b-1 fee and a
CDSL or front-end sales load, but the CDSL or sales load would be
lower than Class B's CDSL or Class A's front-end sales load. Class
C shares might not ever convert automatically to a class of shares
with a lower 12b-1 fee, meaning you could end up paying more if you
hold these shares for a long time.
What Factors Should You Consider in Selecting a Mutual
Fund Class?
If a fund offers multiple classes, it may describe them all in a
single prospectus, or it may describe them in separate
prospectuses. You should decide which class best fits your
investment goals after careful consideration of the information
disclosed in the prospectus (or prospectuses). In some cases, you
may not be eligible to purchase all classes.
Here are a few factors to consider when choosing a
class:
- Your Financial Position. Consider
how much you plan to invest in mutual funds and when you plan to
make those investments. Mutual funds may offer you discounts on the
front-end sales load if certain criteria are met, for example if
you, or you and eligible family members:
- make a large purchase;
- already hold other mutual funds offered by the same fund
family; or
- commit to regularly purchasing the mutual fund’s shares or
purchasing a certain amount of the mutual fund’s shares in the
future.
Typically as you invest more there is a greater reduction in the
sales load.
- Your Time Horizon. Consider how
long you expect to own the mutual fund and your need to access
funds when you think of any trade-off between front-end sales
loads, CDSLs, and on going sales charges. Smart planning may help
reduce the total amount of money you pay in sales charges.
- Sales Charges. Be aware that the sales charges
you pay will likely be used to compensate your financial
professional, and that he or she may receive higher payments by
selling certain classes. Sales charges are not the only fees and
expenses you will pay to invest in a mutual fund, and you should
always consider your total cost of investment. Be sure to review
your account statement(s) regularly, read the mutual fund
prospectus and ask your financial professional to explain any
charges that may apply.