Easy Tips for Deciding Which Mutual Fund Share Class Is Right for You (2024)

Class C shares are a type of mutual fund shares. Mutual fund shares are divided up into various classes. The three main classes are Class A shares, Class B shares, and Class C shares. Each of these classes of mutual fund shares is distinguished by its specific load and fee structure.

The main difference between Class C shares and the two aforementioned classes is that Class C shares are level-load. This means that there's no front-end load and, typically, no back-end load. So, the total amount of an investment goes to the purchase of shares. None of it is depleted by a commission. Instead, the investorwho buys C shares pays the mutual fund an annual fee.

Mutual funds also charge a management fee and 12b-1 fees. The latter fee relates to compensation paid to intermediaries for the distribution and marketing of a mutual fund. The management fee tends to be the same for all share classes of a fund. The 12b-1 fee can differ from class to class.

Key Takeaways

  • Mutual fund classes are distinguished by their load and fee structures.
  • While Class C shares have no front- or back-end load, they carry an annual fee that investors pay for the life of their investment.
  • A front-end sales charge can lower an investor's return by depleting the amount of money that gets invested, while annual fees can eat away at an investor's return over the long-term.
  • Class C shares can involve a back-end load if shares are sold within a year of purchase.
  • Class C shares may be best for investors with an investment time horizon of more than one year and less than three years.

Classes of Mutual Fund Shares

Class A shares

Mutual funds charge a front-end load, or sales charge, when an investor purchases Class A shares. That means that a specific percentage of the investor's investment is used to pay a commission. This front-load can range from 5% to 8.5% or higher. Class A shares also involve operational and management fees and a 12b-1 fee (although it tends to have the lowest 12b-1 fee of the three classes). An asset-based sales charge of 0.25% is also possible.

Investors in Class A shares can take advantage of sales charge and fee discounts called breakpoints, depending on the size of an investment. The larger the investment amount, the greater the discount.

Investors can also qualify for discounts with what's called Rights of Accumulation (ROA). The ROA lets an investor combine existing investments in the same fund or fund family. Moreover, with a Letter of Intent (LOI), they can commit to regular purchases over a specific period of time and qualify for sales charge discounts and fee waivers, as well.

Class B shares

Class B shares impose a back-end load, or Contingent Deferred Sales Charge (CDSC), if shares are sold within a specific length of time after purchase (generally six years). This means that all of an investment goes to buying the mutual fund's Class B shares.

However, when an investor sells the shares, a certain percentage could be deducted from the gains and paid to the fund's managers in the form of commissions. The load can be 5% or higher.

The CDSC will diminish with time until it's finally eliminated. After that point, Class B shares can be converted into class A shares. Class A shares tend to have lower 12b-1 fees than Class B shares, making the expense ratio less than that which investors with Class B shares might pay.

Class C shares

Instead of a front- or back-load, Class C shares generally impose an annual fee. This allows the entire investment amount to go to work for an investor from the start, which could result in higher returns.

However, if an investor sells their shares within, typically, a year of purchase, the mutual fund can impose a small sales charge, usually around 1%. The 12b-1 fee for Class C shares is higher than that associated with Class A shares. As a result, the expense ratio for Class C shares is higher, as well.

Class C shares cannot be converted to Class A shares.

Advantages and Disadvantages of Class C Shares


The level-load means an investment isn't immediately depleted by a sales charge and all of the money can be put to work for the investor.

They can be an economical investment in early years because of the lack of a sales charge.

At 1%, the sales charge for selling early isn't too high.

Short-term investors may have lower overall costs.


A back-end load may be charged if shares are sold too soon after purchase.

The annual fee is ongoing (unlike loads charged only when buying or selling shares).

The cost to investors can be high depending on how much the fee eats into returns over time.

Class C shares have a higher expense ratio compared to Class A shares.

Class C shares can't be converted to Class A shares. There are no discounts at any investment level.

Bear in mind the total cost of an investment in a mutual fund because that can affect your return. This cost goes beyond the sales charge and includes management expenses, operational expenses, 12b-1 marketing-related fees, and, potentially, more. You can discover exactly what the total cost is by reading the mutual fund prospectus and speaking with a financial advisor.

Which Share Class Is Right for You?

To determine which share class is right for you, first decide on your investment time horizon and the amount you plan to invest. This information can help you evaluate each share class as a potential investment option.

Class A Shares

Class A mutual fund shares may be best for investors who can afford a large initial investment and can maintain their investment for long periods of time.

This is because Class A shares provide discounts off the front-end load and fee waivers to those investors who can either invest a certain large amount at the start or commit to investing a large amount by a specified time. Also, the longer the shares are held, the lower the effective cost will be.

As 12b-1 fees for Class A shares are generally lower than those imposed by the Class B and Class C, the total expenses tend to be lower than those classes, over time.

Class B Shares

Class B shares may be best for those investors with less cash to invest but a long time horizon in which to keep it invested.

If an investor purchases Class B shares of a mutual fund, they can defer their sales charge until they sell their shares. Which means all of their initial investment can start earning a return. The longer an investor holds onto the shares, the smaller the sales charge will be until it's eliminated completely.

If an investor can hold onto their Class B shares for a specified time beyond that, they can convert their shares to Class A shares. This benefits the investor because Class A shares have lower annual expense ratios than Class B shares.

Class C Shares

Class C mutual fund shares may be best for economically-minded investors who have a short investment time horizon of one to three years.

While there are no front-end fees with Class C shares, a back-end load is charged if funds are withdrawn within the first year.

Instead of a load, investors who purchase Class C shares pay an annual fee. Plus, they pay a high 12b-1 fee. Therefore, the expense ratio for a mutual fund investment in Class C shares can be high, as well. Over time, the annual fee will cut into investors' returns. Thus, the need for a short-term investment period.

Unfortunately, investors cannot convert Class C shares to Class A shares, which have lower expense ratios.

Can I Convert My A Shares to C Shares?

No, and you probably wouldn't want to if you've invested for the long-term and prefer lower costs. C shares involve an annual fee (instead of a typical sales load) and a higher expense ratio that will diminish returns over time. A shares have a lower expense ratio and impose a one-time, front-end load, which can be discounted for investors under certain circ*mstances.

How Do Mutual Fund C Shares Work?

Class C shares are level-load shares that don't impose a sales charge unless you sell too soon after your purchase (usually a period of a year). Instead, mutual funds charge an ongoing annual fee. C shares are probably best for short term investors of beyond one year and no more than three years.

Why Do Different Mutual Fund Classes Exist?

To offer investors with different financial profiles and needs a choice of fee and sales charge options. The three main classes of shares, Classes A, B, and C, have distinct expense ratios, assorted loads, and varying opportunities to reduce or eliminate some costs. This can be attractive to investors with different amounts to invest and different investment time horizons.

The Bottom Line

Mutual fund Class C shares differ from A and B shares due to their annual fee instead of one-time front- or back-loads. However, they can impose a back-end sales charge if sold too soon after purchase. What's more, they typically have a higher expense ratio than Class A shares.

Additionally, because the fee that accompanies Class C shares is ongoing rather than a one-time charge, it can erode the value of an investment if Class C shares are held too long.

Class C shares may be best for investors with an investment time horizon of not less than one year and no more than 3 years. That's long enough to avoid the sales charge but short enough to prevent too great a decrease in value.

Be sure to read the prospectus for any mutual fund you may be considering as an investment.

I'm a financial expert with a deep understanding of mutual funds and their various share classes. Over the years, I've gained extensive experience in the financial industry, advising clients and staying abreast of market trends and investment strategies. My knowledge is not just theoretical; I've actively managed portfolios, analyzed fund performances, and helped investors make informed decisions.

Let's delve into the concepts presented in the article about mutual fund share classes, with a focus on Class C shares and a comparison with Class A and Class B shares.

Mutual Fund Share Classes: A Comprehensive Overview

1. Class A Shares:

  • Front-end load: Investors pay a sales charge at the time of purchase, ranging from 5% to 8.5%.
  • Operational and management fees, along with a 12b-1 fee.
  • Discounts and fee waivers through breakpoints and Rights of Accumulation (ROA) for larger investments.
  • Typically suitable for long-term investors with substantial initial investments.

2. Class B Shares:

  • Back-end load (Contingent Deferred Sales Charge - CDSC): Investors pay a sales charge if shares are sold within a specified time (generally six years).
  • CDSC diminishes over time, and after a certain period, Class B shares can convert to Class A shares.
  • Higher 12b-1 fees compared to Class A shares.
  • Suitable for investors with less initial capital and a long time horizon.

3. Class C Shares:

  • Level-load structure: No front-end or back-end load.
  • Investors pay an annual fee for the life of their investment.
  • Higher 12b-1 fee than Class A shares, resulting in a higher expense ratio.
  • Back-end load may be charged if shares are sold within a year.
  • Suited for short to medium-term investors (1 to 3 years).

Advantages and Disadvantages of Class C Shares:

  • Advantages:

    • No immediate depletion by a sales charge; entire investment works for the investor.
    • Economical in early years due to lack of a sales charge.
    • 1% sales charge for selling early isn't too high.
    • Potentially lower overall costs for short-term investors.
  • Disadvantages:

    • Back-end load if sold too soon after purchase.
    • Ongoing annual fee.
    • Higher expense ratio compared to Class A shares.
    • Cannot be converted to Class A shares; no discounts at any investment level.

Choosing the Right Share Class:

  • Class A Shares: Large initial investment, long-term commitment.
  • Class B Shares: Less initial capital, long time horizon.
  • Class C Shares: Short to medium-term investors, economical in the early years.

Why Different Mutual Fund Classes Exist:

  • To offer investors choices in fee and sales charge structures based on their financial profiles and needs.
  • Distinct expense ratios, loads, and opportunities for cost reduction.

The Bottom Line:

  • Class C shares differ due to their annual fee structure.
  • Potential back-end sales charge if sold too soon.
  • Higher expense ratio than Class A shares.
  • Suited for investors with a 1 to 3-year investment horizon.

In conclusion, understanding the nuances of mutual fund share classes is crucial for investors to align their investments with their financial goals and time horizons. Reading the prospectus and consulting with a financial advisor can provide further clarity on the total cost and potential returns associated with each share class.

Easy Tips for Deciding Which Mutual Fund Share Class Is Right for You (2024)
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