Mutual Fund Investing

Before you begin investing in mutual funds, there are several things you should be aware of. One of the most important things to know about mutual funds is that there are several different share classes. In addition to the standard A, B, and C share classes, there are also different share classes for 401K investments and institutional shares.

Understanding Mutual Fund Investing

If you're new to mutual fund investing, you should take the time to learn the difference between A, B, and C shares. These are the shares that are most typically used by retail investors. A shares are the most popular share class of the three. The main difference between each share class boils down to fees.

When you purchase A shares of a mutual fund, you are agreeing to pay an initial fee for buying into the fund. This initial fee will change depending on the fund family and how much money you invest, but the standard fee for an A share is normally five percent. B shares don't charge an initial sales fee, but they require that you hold the fund for a certain number of years or a five percent fee will be applied for selling before that time. Individuals should try to steer away from buying B shares since investors typically sell before the holding period ends. Standard C shares typically have a one percent initial sales charge and one percent on the back end when you sell out, but they also charge a higher annual fee than A or B shares.

These standard fees will vary according to each fund's investment prospectus, but it's worth taking the time to understand the difference between mutual fund investments. You'll need to invest in a share class based on your investment time horizon. Buy-and-hold investors should consider A shares, while mutual fund traders should look into C shares. Consulting with an independent financial advisor can help you figure out which share class is best for your portfolio. Mutual fund newsletters and advice columns from reputable financial professionals are also great ways to get investing tips.