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Mutual Fund Share Class Concerns
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My plans for the year included a series of articles on investing starting in September. Given the market volatility during the past few weeks these might start at a good time.

Before we get started, it’s proper for me to state that I have sold Traditional Mutual Funds in years past. I was never a large producer, and was fortunate to have used broker dealers that did not pressure me to sell from one or more particular fund families.

With any purchase, whether it is a Mutual Fund, Life Insurance Policy, Annuity or a toaster, a major consideration should be how much does it cost me out of my pocket? Securities representatives are usually paid by commissions on new dollars that are invested into the account.

The three main categories of mutual funds are A, B and C funds. There are three others: F, I and R to touch on.
A Class shares usually will have a commission or sales load deducted from your purchase. This charge can range from 2 to 5.5 percent which means your dollar may start at 94.5 to 98 cents. The good news is that A Shares tend to have the lowest annual expense ratio.

B Class shares do not have up-front sales charges, but instead have a contingent deferred sales charge or back end load if the account is redeemed in less than a certain number of years. Expenses are usually higher and a marketing or 12b1 fee is included in B shares. These shares will usually convert to the A Class in 5 to 7 years.

C Class shares do not have sales charges but the expense and 12b1 fees are usually the same as B Class. Over a long period of time, the C Class shares may well be the most expensive.

F Class shares are usually no load funds. There will be ongoing expenses and there is usually an asset based fee of maybe 1 percent that is directly billed to the investor by a financial advisor.

I Class shares are institutional shares and usually require a minimum investment of $1,000,000. They may be available in larger 401K Plans and will certainly carry lower investment costs.

R Class shares are specifically designed for retirement plans. With this class, additional fees may be added to cover the cost of plan management, record keeping and other administrative expenses.

Will these various share classes really make much of a difference to my wallet? Yes, they will. As an example, let’s look at a mutual fund from the American Funds family as their funds are very prevalent for individual investors. Their Balanced Fund “seeks capital preservation, current income, and long term growth of capital income” according to the American Funds website. The fund has over $50 Billion in assets so it’s not a small fund!

Morningstar is an excellent reference guide if you want to compare performance and expenses. The Balanced Fund has over 10 shares classes, so let’s look at just five: A, B, C, F and R.

Here are the projected costs over a 10 year period of time for a $10,000 investment:

A Class: $1,270
This class has a sales charge of 5.75%.

B Class: $1,699
This class has a 5% deferred sales charge for 6 years.

C Class: $1,903
This class has a 1% deferred sales charge for 1 year.

F Class: $1,075
This class does not include the fee from advisor.

R Class: $1,914
This class is expensive if it’s your retirement plan. There are five other R Class shares offered by American Funds.

There are obviously some significant differences by Class, but if you have $100,000 of retail mutual funds in your account, I think you get the picture. Check out your account statements as savings are definitely available!

Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached locally at 770-786-2781.