All mutual funds have fees and expenses associated with defraying normal operating costs, and some mutual funds have sales charges while others do not. Those that do are known as "load" mutual funds--that is, they charge a load to purchase their shares. These charges are paid in several ways: up front, at the end or along the way.
Dealer concessions (sales charges) are transaction fees paid to brokerage firms by the mutual fund company as compensation. These concessions are used by the brokerage to pay overhead and the adviser's commission.
"A" Class and "B" Class shares
"A" and "B" class mutual fund shares are also known as front- and back-loaded shares. Front-end loads are deducted from the purchase principle, and back-end loads are paid upon redemption.
"C" shares have a level load which is paid continually. These shares are less commonly used.
Front-End Load Benefits
"A" shares have lower operating expenses once the initial sales charges is paid, and breakpoints (volume discounts) at certain levels reduce the sales charge. Due to the initial load, however, these shares are more suitable for investors with long time-frames and larger amounts of investment.
"B" shares are suitable for those with less initial capital. Also known as a contingent deferred sales charge, the back-end loaded shares carry a higher total operating expense for the first several years before converting to "A" shares. The extra capital that's initially available for earning returns may offset the higher expenses.
- /mu/ essentials (nominated for best list for 2019 aoty awards!) - A List by okcomputer12127 - Album of the Year
- FINRA: Understanding Mutual Fund Classes
- SEC: Mutual Fund Fees and Expenses
- U.S. Securities and Exchange Commission. "How to Read a Mutual Fund Prospectus (Part 3 of 3: Management, Shareholder Information, and Statement of Additional Information)." Accessed May 16, 2020.
- U.S. Securities and Exchange Commission. "How to Read a Mutual Fund Prospectus (Part 2 of 3: Fee Table and Performance)." Accessed May 16, 2020.
- U.S. Securities and Exchange Commission. "Mutual Fund Fees and Expenses." Accessed May 16, 2020.
- Internal Revenue Service. "Topic No. 409 Capital Gains and Losses." Accessed May 16, 2020.
- Internal Revenue Service. "Mutual Funds (Costs, Distributions, etc.)" Accessed May 16, 2020.
Moss Strohem has a background in business and finance, and an avid interest in youth sports, health, nutrition and physiology. He writes both technical information and market commentary as a private consultant and has researched and authored business plans.