Mutual Fund Class Warfare

What do Marxists, high school students, frequent flyers and mutual fund investors have in common? Answer: They all want a world without classes.

Sorry for the cheap joke, but there aren't too many mutual fund jokes out there, and unfortunately, it's a cheap joke about a very expensive and sore subject to mutual fund investors. Especially those investors burned in the past for purchasing the wrong class of shares simply because they were unaware of the difference between fund classes.

So now that we've exhausted all the possible humor on the subject, here's a quick tutorial on fund classes:

A single mutual fund may offer more than one class of its shares to investors. The primary classes are catalogued as A, B or C shares, although there are other types out there with corresponding letters. If your broker is showing you anything from a D on down, you are probably far too gifted and talented for this particular class, or you should change brokers immediately.

In a nutshell, the principal differences among the three primary classes are the fees and expenses the mutual fund will charge you. Or, to paraphrase Led Zeppelin, no matter what class you buy into, the fund remains the same.

All the information regarding the fees associated with a particular mutual fund can be found in that fund's prospectus. Unfortunately, many times, prospectuses are more difficult to read than calculus textbooks. Therefore, it may be worthwhile to go online and check the SEC's Mutual Fund Cost calculator to get a clearer understanding of the fees you will be paying.

Class A Shares

It's a bit of a misnomer in our grade-grubbing society, but buying Class A shares does not mean you are buying first-class shares, or a fund with a high rating from an agency like Moody's or S&P. Class A Shares have nothing to do with quality. Once again, the fund remains the same, it's the fees that determine the class.