The Basics Of Mutual Fund Classes

In order to get the most out of your returns,stocks because they are not required to pay
without paying a high fee, you need to be awarefront end fees and the deferred sales charge
of the different classes of mutual fund stockskeeps reducing. The other benefit is that these
and their advantages and disadvantages. Mutualstocks are automatically converted into Class 'A'
fund companies often charge a higher fee whenstocks, which have a lower yearly management
you opt to invest in 'high risk high return' stocks.expense ratio or MER. The only problem with
However, paying higher fees does not necessarilyClass 'B' stocks is that you are required to pay
ensure high returns because stock prices fluctuatethe deferred sales fees in case you withdraw the
on a daily basis. This makes it difficult even forfunds before the specified period. Another
professional fund managers to predict the futuredisadvantage is that you do not avail of discounts,
course of a certain stock. Mutual fund classessince there are no provisions for a breakpoint.
show the type of stocks covered under eachThis means that you are not able to reduce
mutual fund and the fees charged. The mostinvestment costs even if you increase your
common mutual fund classes are A, B, and C.investment.
Class 'A' StocksClass C Stocks
These types of stocks attract lower 12b-1 feesThese types of stocks work best for those
and are considered the best if you are planning toplanning to redeem the stocks within a short span
keep investment for two or more years.of time. They are beneficial because you are not
Investing in such stocks makes you eligible torequired to pay the front-end fees. The back-end
receive discounts, every time your investmentload is less too, one percent in most cases. Even
arrives at a certain amount. The amount isthis one percent back-end load is eliminated if you
selected at the time of buying the mutual fundkeep the investment for more than a year. Some
and is referred to as the 'breakpoint'. Discountsof the drawbacks of Class 'C' stocks include
are also offered when you express the intent ofcompulsory back-end load, higher MER, zero
reaching the breakpoint within a specified period.discounts and lack of provision for automatic
However, in case you are unable to reach theconversions.
breakpoint prior to the deadline, as mentioned inIn order to benefit from your investments, you
the 'letter of intent', you are required to pay theneed to consider a number of factors, such as
regular front-end fees.the time for which you plan to invest, the
Class B Stocksfrequency of your investments and whether you
These types of stocks are characterized by theirare liable to withdraw the funds in the near future.
contingent deferred sales charge and areThe analysis of the benefits and drawbacks of
appropriate for investors who have limitedeach class of stocks will help you to select the
resources and are looking for long termmost appropriate investment option, based on
investment. Small investors prefer these types ofyour specific needs and preferences.