Understanding the ABC’s of Mutual Fund Investing

A B C block letters

The fee-based and commission advisors are reimbursed by mutual funds in exchange for the investments they sell. Most mutual funds with sales commissions come in three main share classes:

  • Class A Shares: These funds charge what is called a “front load,” meaning that a client will pay a percentage of the purchase amount in the form of commission up front every time an investor buys shares, which reduces the purchase amount. For instance, a $1,000 investment with a 5% front load would net the investor with a $950 investment.
  • Class B Shares: These funds charge a “back load,” which means you’ll pay a percent of the dollar value of shares sold (opposite of “front load”). You do not pay anything up front, but you do pay a pre-determined percentage when it’s sold.
  • Class C Shares: These funds charge a “level load,” which means there is an ongoing fee as long as you hold the fund. This increases the expenses of the fund and drags down returns.