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Mutual Fund Share Classes Explained

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									                   Mutual Fund Share Classes Explained


If you are like most investors you have been exposed to the variety of Mutual Funds and
their different classes. Do you understand them? Do you understand how they can affect
your returns? Read more to learn about one of the Fund industry's big mysteries.


Most Mutual Funds offer multiple classes of shares. They all invest in the same
underlying fund but the expenses and commissions paid, referred to as "load", are
varying and can serious affect the returns you realize. Most Mutual Funds offer three
share classes which are typically referred to as A, B, and C share classes, and loads and
fees vary per share class.

For typical longer term investors the Class "A" tends to be the best option if you can
invest a lump sum into the fund. The Class "B" shares also target long-term investors and
they can be cheaper than "A" shares, and usually convert to "A" shares after a fixed
period of time. The Class "C" are usually best suited for the short-term investor and do
not convert to any other class of shares.

Mutual Fund Loads

There are several types of commissions or "Loads" that can be charged on a Mutual Fund
investment. There are upfront commissions or "Front End Loads" that are paid when you
buy. There are commissions that can be charged when you sell that are called "Back End
Loads". There are also commission charged annually, referred to as "12B-1 Fees" or
"Trailing Commissions". Each fund investment usually has a 12B-1 Fee and some
combination of Front End or Back End Loaded commission and the structure of the
commissions are all outlined in the prospectus. The breakdown varies per fund and can
severely hamper your performance if you make the wrong choice.

Class "A" shares typically charge a "Front End Load" meaning that this commission
is charged up front and reduces the amount of money invested in the fund. Fund
Companies offer "Break Points" or reduced commissions as you invest (or pledge to
invest) more money in the fund. There is usually no commission charged when you sell
the fund as it was all paid up front.

Class "A" shares usually charge a 12B-1 Fee that is lower than the other classes,
often.25% or less (referred to as 25 basis points). This amount is charged regardless of
the amount of money you invest.

Class "B" shares charge a "Back End Load" where no commission is charged up front
but is charged when you sell. This commission charged is usually reduced annually until
it reaches zero and then the shares convert to Class "A" shares.
Class "B" shares also charge a higher 12B-1 Fee than the Class "A" counterparts,
often.75% or higher (75 basis points). This amount is charged annually until the Class
"B" shares convert to Class "B" shares when it adopts the lower 12B-1 rate.

Class "C" often charges a combination all three loads. They usually charge a reduced
Front End Load when you buy shares and a reduced Back End Load when you sell
shares. They also charge a higher 12B-1 Fee, some as high as 1.75 percent per year. The
back-end load is often waived if you have owned them for a period of time. These shares
typically do not convert to Class "A" shares.

Many of you have heard of "No Load Funds", the biggest of which is the Vanguard S&P
500 (VSPGX). These funds have no Front End or Back End Loads but can charge a 12B-
1 fee of up to.25%. These funds are hugely popular with investors who do not use a
Financial Advisor.

Regardless of the class of Mutual Fund you choose to invest in, you must consider the
investment objectives of the fund in addition to the charges and expenses. Please conduct
thorough due diligence before purchasing any fund.

								
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