What is the difference between A, B and C shares?

    Published: 06-16-2009
    Views: 22,220
    Financial planner David Marotta describes the basics of a mutual fund including the differences between A, B and C shares.

    David John Marotta

    David John Marotta is the President of Marotta Wealth Management, a fee-only financial planning and asset management firm in Charlottesville, Virginia. He is an oft-quoted writer and speaker on financial matters and his weekly financial column can be found at www.eMarotta.com

    Host: What is the difference between A, B and C shares?

    David Morotta: A shares are what is called front-loaded, which means that the sales charge is taken out on the front end. So, if you invest -- usually the sales charge is between 4% and 6%. So, if you invest a $100, the salesman puts 6% in his pocket and $94 is actually what goes to buy investments. B shares are loaded on the back end and the way that works, is you invest your $100 and if you keep the money in for seven years there is no sales charge, but if you take the money out then they are going to take their 6% out and it gradually goes down to 0% usually after about seven years.

    C shares are what are called constant loaded; you can take your money in and out as much as you want, but the investment charges, the expenses on the account are usually very high. So, there might an extra percent high or two percent high and so you might have a sales charge of 3% or 4%, an expense ratio of 3% or 4%, whereas a normal mutual fund might only be one or less percent.

    So, A, B and C shares are all paying the salesman s commission, we do not recommend in investing in anything except no load funds and no load funds will not be A, B and C shares, they are sometimes called F shares.