What are Mutual Fund Class C Shares?

by | Oct 26, 2015 | Asset Management, Videos

We’ve already covered class A and class B shares of mutual funds, so in this video I explain what mutual fund class C shares are. Again, I cannot stress the importance of understanding these different share classes enough. Too many investors get themselves into trouble by not knowing what they own.

Class C shares of a mutual fund have similarities and differences to their class A and B share brethren. While they all involve a sales charge, it comes in different forms and at different times.

Unlike class A shares, class C shares usually do not have a front-end sales charge. Like class B shares, class C shares tend to have a back-end (or contingent deferred) sales charge. However, class C shares normally have a shorter period when the back-end charge is in effect. One year tends to be the maximum with C shares, but don’t take that for granted – find this out beforehand!

As we’ve discussed, all mutual fund share classes have expenses. The degree to which they are passed onto investors is often what sets them apart. Class C shares tend to have higher expense ratios and 12b-1 fees than other share classes. In the case of class C shares, the 12b-1 fees act as a trailing commission to the investment firm and broker who sells the fund. This trailing fee is paid each year the fund is held, rather than upfront or at the end of the investment period. Another point to remember is that class C shares almost never convert to another share class.

These notes on mutual fund class C shares will hopefully help make you a more informed investor.

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