Perhaps you’ve seen that mutual funds have different share classes? Whether or not you’ve noticed this, it’s something you need to be aware of as an investor. Aside from knowing that mutual funds offer different share classes, investors also need to know what these different share classes entail.
Different share classes of the same mutual fund invest in the same portfolio of securities. Their difference lies in how they charge for their fees and expenses. Every class of mutual fund will have some type of ongoing expense ratio. However, some mutual fund share classes also involve sales charges (AKA loads). All the costs of owning any investment should be meticulously considered before making a decision to invest.
In the video above, Tim details the mutual fund Class A share. Mutual fund class A shares charge a front-end sales load. This is an initial sales charge that gets paid on the way into an investment. The fee goes to the selling broker and their firm. Front end sales loads typically range from 4-5% of the money being invested, although these rates may decrease if an investor has larger amounts of money to invest.
It’s very important to understand different mutual fund share classes, as well as alternatives to mutual funds, like ETFs. Having a well-rounded knowledge of how different types of investments work allows investors to make the best possible decision for their personal situation.
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