Mutual Fund Share Classes

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When you choose a mutual fund from among the investment options available in your 403(b) plan, you may have to decide which share class to purchase. Different share classes charge fees and expenses in different ways, even though you are purchasing shares of the same mutual fund.

All mutual funds have some costs that are passed on to investors. Generally, these are sales charges and annual expenses. The sales charge is the broker's commission – this is usually a one-time charge deducted from your investment when you buy or sell the fund, depending on whether it is a front-end load fund or back-end load fund.

The annual expenses generally cover the administration of the fund, management fees, marketing fees (12b-1 fees), etc. These are usually calculated as a percentage of your assets and are deducted every year.

One way or another, you will end up paying fees. However, the amount and the way the fees are charged varies depending on the share class. The most common share classes are:

Class A shares. With Class A shares, the sales charge (front-end load) is deducted upfront. Usually, there are "breakpoints" – basically a quantity discount – where you will be charged a smaller amount if you buy more shares. The 12b-1 fees, which are annual fees, if charged, tend to be lower with Class A shares. Although the amount you invest is immediately reduced by the upfront sales fee, these may be the least expensive shares to own over the long term.

Class B shares. With Class B shares, there is no upfront sales charge. Instead, they generally have a contingent deferred sales charge (CDSC) that applies if you sell your shares within a certain time period, usually six years or so. Sometimes, if you hold the shares for a long period, the shares convert to Class A shares, and then there will be no sales charge when you sell them. However, the annual 12b-1 fees are generally higher than with Class A shares, so if you hold Class B shares for a long period, you may end up paying more in total costs over the long term. In addition, Class B shares generally do not offer a breakpoint.

Class C shares. Class C shares generally do not have a front-end load and may charge a lower back-end load than Class B shares. The charge may be reduced to zero if you hold the shares for a specific period. However, the 12b-1 fees are usually higher with Class C shares, and unlike Class B shares, they usually don't convert to Class A shares. Class C shares generally do not offer a breakpoint.

Which Should You Choose?

You need to think about a number of things when you decide which share class to purchase:

  • What are the upfront costs, if any?
  • Are there discounts for larger purchases?
  • How long do I expect to hold this investment?

For more information, you can find the specific fees and expenses for the funds available through your plan at You can also review the impact of fund fees using the Financial Industry Regulatory Authority (FINRA) Mutual Fund Fee Analyzer.