The Different Classes of Mutual Funds
Mutual funds are a type of investment that come in many different categories, which give you the allowance to choose the most favorable category that will meet your investment needs.
All these categories fall under three major classes known as class A, B and C.
The classes are based on the charges that are subject to the buying price of the shares.
These charges include, but are not limited to, sales charge, which is also known as the brokers commission, the annual expenses (service and distribution fees) and the general management fees.
After you choose the class of mutual funds to settle for, put into mind the amount of money you want to invest, as well as the period of time you want your money to remain in the investment plan.
In other words, how long will it be before you redeem your shares? The first class of shares, class A, are most suitable for people who want to have a long-term investment, characterized by a large number of shares.
The charges on this class of shares are upfront, meaning that they are payable as you buy the shares.
For example, assuming you want to invest $40,000 and the commission chargeable is 5% of this value.
This means that $2,000 will be deducted and the remaining $38,000 is what will be invested.
For class B shares, you may want to consider investing in them if you have a smaller amount of money that you want to invest, but for a long period of time.
The good thing with class B shares is that, they charge no up front charges and as such, all the money you want to invest goes into the investment pool.
However, they carry an end-load charge, which means that you will be charged when you will be redeeming your shares.
This fee is also widely known as the Contingent Deferred Sales Charge.
The value of the charge decreases over the year, meaning that you may actually get to redeem your shares free of charge.
For example, if you buy class B shares worth $5,000 with an end-load of 5%, the percentage will decrease with for example, 1% and if you sell off your shares in the second year, you will be charged at 4%.
This tells you that, if you decide to hold your shares for more than five years, then you will be charged nothing as you redeem them.
Class C shares are not so different from the class B, the only notable difference is that the end-load charge normally takes only 12 months to be reduced to zero.
In other words, this class is more recommendable for large amounts of money that you intend to invest for a short-term goal.
Other charges for the class C share are however generally higher than the class B or A shares.
All these categories fall under three major classes known as class A, B and C.
The classes are based on the charges that are subject to the buying price of the shares.
These charges include, but are not limited to, sales charge, which is also known as the brokers commission, the annual expenses (service and distribution fees) and the general management fees.
After you choose the class of mutual funds to settle for, put into mind the amount of money you want to invest, as well as the period of time you want your money to remain in the investment plan.
In other words, how long will it be before you redeem your shares? The first class of shares, class A, are most suitable for people who want to have a long-term investment, characterized by a large number of shares.
The charges on this class of shares are upfront, meaning that they are payable as you buy the shares.
For example, assuming you want to invest $40,000 and the commission chargeable is 5% of this value.
This means that $2,000 will be deducted and the remaining $38,000 is what will be invested.
For class B shares, you may want to consider investing in them if you have a smaller amount of money that you want to invest, but for a long period of time.
The good thing with class B shares is that, they charge no up front charges and as such, all the money you want to invest goes into the investment pool.
However, they carry an end-load charge, which means that you will be charged when you will be redeeming your shares.
This fee is also widely known as the Contingent Deferred Sales Charge.
The value of the charge decreases over the year, meaning that you may actually get to redeem your shares free of charge.
For example, if you buy class B shares worth $5,000 with an end-load of 5%, the percentage will decrease with for example, 1% and if you sell off your shares in the second year, you will be charged at 4%.
This tells you that, if you decide to hold your shares for more than five years, then you will be charged nothing as you redeem them.
Class C shares are not so different from the class B, the only notable difference is that the end-load charge normally takes only 12 months to be reduced to zero.
In other words, this class is more recommendable for large amounts of money that you intend to invest for a short-term goal.
Other charges for the class C share are however generally higher than the class B or A shares.
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