What is the difference for a fund (t rowe price, fidelity, dreyfus, vanguard) which lists Class A (plus some other alphabetic designations) ?
does the Class A somehow designate a better composition for the fund?
is it of significant benefit to be able to purchase a Class A without sales fees, other than the cost of the fees themselves (which is obviously a benefit) because this Class A does better somehow than the same fund Class T or similar ?
Hi. Class A typically refers to a *LOADED FUND* that will take X% of the money you send them and kick it right back to whoever sold you the fund. This is one of the ways advisers get paid. However, if you do just a little research, you can always find a NO-LOAD fund that will meet the same purpose and performance, and that will save you lots of money. Whether a fund is loaded or not, has zero bearing on how well it will do with your money (whatever's left after the fees). Some funds are back- end loaded so all your money goes in, but X% is cut away from you when you take it out... If you can buy a fund that is typically loaded, without paying the load, then it is on equal footing for comparison with other similarly oriented no-load funds. Then you can compare by performance and expenses. Some loaded-funds have shares with no front or back load, but instead take an extra bit out every year beyond what it actually takes to run the fund, which goes to the seller. It is best to avoid these loads if you can do your own fund choosing.
"Class A shares typically charge a front-end sales charge. When you buy Class A shares with a front-end sales charge, a portion of the dollars you pay is not invested. Class A shares may impose an asset- based sales charge, but it generally is lower than the asset-based sales charge imposed by the other classes. A mutual fund may offer you discounts, called breakpoints, on the front-end sales charge if you:
make a large purchase; already hold other mutual funds offered by the same fund family; or commit to regularly purchasing the mutual fund's shares.
Class B shares typically do not charge a front-end sales charge, but they do impose asset-based sales charges that may be higher than those that you would incur if you purchased Class A shares. Class B shares also normally impose a contingent deferred sales charge (CDSC), which you pay when you sell your shares. For this reason, these should not be referred to as "no-load" shares. The CDSC normally declines and eventually is eliminated the longer you hold your shares. Once the CDSC is eliminated, Class B shares often then "convert" into Class A shares. When they convert, they will begin to charge the same asset- based sales charge as the Class A shares.
Class B shares do not impose a sales charge at the time of purchase. So unlike Class A purchases, all of your dollars would be immediately invested. But your expenses, as measured by the expense ratio, may be higher. You also may pay a sales charge when you sell your Class B shares.
If you intend to purchase a large amount of Class B shares, you may want to discuss with your financial adviser whether Class A shares would be preferable. The expense ratio charged on Class A shares is generally lower than for the Class B shares, and the mutual fund may offer large-purchase breakpoint discounts from the front-end sales charge for Class A shares.
Class C shares usually do not impose a front-end sales charge on the purchase, so the full dollar amount that you pay is immediately invested. Often Class C shares impose a small charge if you sell your shares within a short time of purchase, usually one year. Class C shares typically impose higher asset-based sales charges than Class A shares, and since their shares generally do not convert into Class A shares, their asset-based sales charge will not be reduced over time. Class C shares are often used for asset-allocation purposes.
Class C shares do not impose a sales charge at the time of purchase, but they may impose a CDSC or other redemption fees. Additionally, in most cases your expense ratio would be higher than Class A shares, and even than Class B shares if you hold for a long time!"
The important thing to remember is that if you are in a fund, you will pay for it. There is a difference between a "No Load" and a "No Cost" fund. Every fund costs you money. You either pay it now or later. So it depends on what your preference is.
My personal preference is to pay it up front and be done with it.The fees are based on a % of the amount in the fund and when you put the money in, that is when you typicaly have the least amount of money in the fund (ideally). If you don't pay the fee going in then you will either pay a percentage of it on an annual basis or when you come out of the fund.
They get you coming or going.
Brandon Hansen
Brandon Hansen -
-0500]:
No, if you pay it up front you ALSO pay it every year as an expense ratio.
I suggest you research this, you are completely wrong.
Justin, I think he meant that since B and C shares may charge a back- end load that is % based, you could end up paying more if the fund has greatly appreciated. IOW, he would rather pay 1% up front on $100 ($1) than pay 1% on the back when that fund has appreciated to $10000 ($100).
However, that the thinking is potentially flawed. Front-end loads are often higher than back-end loads so you may pay 5% up front or 1% on the end. Furthermore, paying up front means that there is less to invest and grow.
As Justin said, you are never truly done with expenses. ALL funds have fees deducted annually. "A shares" generally have lower expense ratios than the other share classes, followed by B then C. Some companies also make a bunch of other share classes. What's best for each person will depend on holding period, investment amount (breakpoints), expected return, asset allocation strategies, etc, etc.
I'm not so sure, he said "No-Load" funds had expenses while implying front end loaded funds didn't.
However, many (most?) Loaded funds have higher expenses than many no-load funds.
Truly so and controlling fees/expenses are paramount to successfully growing a portfolio. I am by no means advocating loaded funds, just trying to lay out how the system works.
This is for anyone unclear on loaded funds.
There is no such thing as a no-expense fund. A *load*, however, is an excrescent cut from the investor *and* the fund! Loads don't defray any fund management costs or help in any way the investment performance of the fund. They go
*out* of the fund to whoever is on record as having been the middleman in the investment purchase by the investor. Actual fund expenses have nothing to do with loads. Loads are simply legal 'kick-back' enticements made by the fund managers with the investor's money so that brokers will sell their funds. There are more stock mutual funds than there are individual stocks that make up the body of investments of these funds. There will always be a no- load fund with the same investment mix/philosophy and year-to-year performance as any loaded fund you might consider. In fact I would guess that the better funds that compete well enough on the merits of their performance would rather not have loads, but would rather keep and invest all the money. It would be the lesser funds that need to do something more to capture market share that would be forced to sacrifice some of their funds under management via front or yearly loads, or least painfully to the fund, via back-end loads. Joe
That's not the way loads work. Loads are *in addition* to the ongoing expenses. Whether or not you pay a load, you pay "later" as you would say. Loads are entirely separate and in addition to expenses. Some loads are partially obscured by tacking them on as additional ongoing expenses, but that's, again, in *addition* to the funds operating ongoing expense ratio.
Loads are a sales fee. They go, generally, to the brokerage and broker who sold you the fund. If that broker helped you choose the funds and figure out how they fit into your financial plan, you've paid for that help. If you got no help but paid a load anyway, you wasted that money.
There's nothing inherently wrong with loads - if you know what they are and you get what you pay for. But if you're not getting that help, there is no reason whatsoever to pay the load.
Whether you buy a load fund or a no-load fund, the manager of the fund gets paid and loads do *not* subsidize that. They are seperate.
That is NOT correct.
And neither is that.
No, there is technically no such thing as an expense free fund but some no load index funds can have ER's so low that for practical purposes these funds are "expense free" compared to the alternatives. This is particularly true in well administered 401K plans where the employer has done the right thing and demanded low cost performance from the 401K provider. It is equally possible to find high load actively managed funds with high ER's and 401K's etc. with obscene fee structures. It is very important for each investor to inform himself what he is paying to participate in his investments and to make investment decisions that are in his interest not in the interest of a salesman, financial company, etc. -- at least to the extent of avoiding blatant rip-offs.
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