Is it Best to Buy A, B, or C Shares?

A, B, or C Shares? Which Mutual Fund Share Class Should You Buy?

adviser consulting with couple
••• Getty Images

Mutual funds come in a variety of share classes. A shares, B shares, and C shares are the primary share classes among funds that charge sales loads. Each of the shares has its own unique fee structure. Investors may also purchase no-load funds, which are not formally designated a share class.

Basics on Mutual Fund Share Classes

There are several different share classes of mutual funds. The range seems to cover nearly the entire alphabet. The most common mutual fund share classes are A, B, and C shares but there are also D, I, K, R, Z shares, and more.

Here are the basics on mutual fund share classes:

  • Class A Share Mutual Funds: These funds charge what is called a "front load," which means that you'll pay a percentage of your purchase amount every time you buy shares. Front loads can be up to 5% or higher. For example, if you buy an A Share mutual fund with a 5% front load, and you're buying $10,000 of shares, you'll pay a $500 load up front. In different words, you'll end up investing $9,500, not $10,000.
  • Class B Share Mutual Funds: These funds charge a "back load," also called a "contingent deferred sales charge (CDSC), which means you'll pay a percentage of the dollar value of shares sold. This is the opposite of front load funds. You don't pay up front but you do pay when you sell. Fortunately the back load declines gradually while you hold the fund and eventually the load goes all the way down to zero. However, one drawback of B share funds is that they usually have something called a 12b-1 fee, which increases the expenses of the fund.
  • Class C Share Mutual Funds: These funds charge what is called a "level load," which means there is an ongoing fee, usually 1.00%, as long as you hold the fund. This increases the expenses of the fund and drags down returns, like the 12b-1 fee with B shares.

Which Share Class is Best: A, B, or C Shares (or No-Load)?

The most important point to make about mutual fund share classes is that, if you are a do-it-yourself investor, the best share class for you is not technically a share class -- it's no-load funds! Sometimes mutual fund companies will classify no-load funds as "investor shares."

The primary reason to buy A shares, B shares or C shares with mutual funds is because you are using a financial professional that gets paid by commission for the advice she provides to you. If you want to learn more about the costs and benefits on the services and fees of financial professionals, you can read this article on choosing the best advisor.

Why Use No-Load Funds

If you are a do-it-yourself investor, no-load funds are generally a better choice compared to A, B or C shares. No-load funds generally have lower expense ratios and there is no load (sales charge) to pay. Lower expenses can potentially lead to higher returns over time because more of your money is staying in the fund, rather than trickling out into the hands of a stock broker or mutual fund company.

But if you are buying loaded funds, here's the basic breakdown on what's best for you:

  • When A Shares Are Best: Long-term investors (more than 5 years and definitely more than 10) will do best with A share funds. Even though the front load may seem high, the ongoing, internal expenses of A share funds tend to be lower than B and C shares.
  • When B Shares Are Best: If you think you'll sell your shares in about 5 to 7 years, and the back load amount decreases every year, B shares can be a good idea because you won't pay any load up front and you'll pay little or nothing when you sell. Just be sure that the expense ratio is not too high (hopefully not much higher than 1.00%).
  • When C Shares Are Best: This share class is usually the best idea when you'll be holding your mutual fund shares for a short period of time (more than one year but less than three). You don't pay a front load but a back load is sometimes charged if you sell the fund within one year. The ongoing 1.00% level load gets expensive over time, which is why these are best for one to three years.

Bottom Line

The primary differences between the various share classes of mutual funds is their fee structure. Paying fees or sales charges generally makes the most sense when you are getting advice from a financial professional who gets paid by commission. Most importantly, investors should try to keep costs as low as possible and only buy funds that are suitable for their investment goals and risk tolerance.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

Article Sources

  1. FINRA. "Updated: Understanding Mutual Fund Classes." Accessed January 10, 2020

  2. Investor.gov. "DISTRIBUTION [AND/OR SERVICE] (12B-1) FEES." Accessed January 10, 2020.