Tim recently covered what mutual fund A shares are, so if you missed that video, I encourage you to check it out! As noted there, mutual funds have different share classes. It’s very important that investors understand these different classes and the potential implications of investment.

Mutual fund class B shares are not very common anymore, but investors should still understand how they work. It’s actually pretty simple to remember what B shares are all about: B shares mean a back-end sales charge.

Back-end sales charges are also called contingent deferred sales charges. What this means is that if you want to sell the fund, you pay a sales charge on the way out. This differs from the class A share, which contains a front-end sales charge that you pay on the way in. Contingent deferred sales charges are frequently seen on other products like deferred annuities.

With class B shares, the back-end sales charge typically decreases over time (as shown on the big board in our video example). An important point to note is that B shares usually have higher expense ratios and 12b-1 fees than A shares.

Although these funds are rarely sold anymore, it’s vital that investors know the basics of how they work. This will hopefully help you make more informed decisions about your investments.

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