Learn your ABCs before buying that load fund a broker is selling

The Ticker

August 14, 1998|By Julius Westheimer

ARE YOU thinking of buying a mutual fund? Before buying, you will be given three options: Class A, B or C shares. It's important to choose the right one for you.

According to Perspectives, the newsletter of the Institute of Certified Financial Planners, "each class provides a different way to pay for advice you receive in selecting a fund. (No-load funds do not have share classes.) Which class you choose depends on how much you invest and how long you will leave it in the fund."

Class A: These shares carry the front-end sales charge, or "load," that brokerage firms traditionally charge, roughly 2.5 percent to 6 percent.

Class B: The sales charge is deferred, or "back-loaded." You pay the back load only if you sell shares within a certain number of years. The load declines each year until it reaches zero.

Class C: Called "level load" shares, these are similar to no-load funds that charge advertising and marketing fees. There's no upfront sales charge or a back-end redemption fee unless shares are redeemed within a year. You pay the fee, usually 1 percent, for as long as you stay invested in the fund.

"At this point," says Perspectives, "many investors would pick Class C, since it doesn't have an upfront sales charge, but that can actually be the worst choice."

Choose A or B shares if you plan to stay invested for several years. The newsletter explains, "Let's say you want to invest $1,000. With A shares, you might pay a 4 percent upfront charge ($40) and an annual 0.25 percent fee on the remaining $960 ($2.35). After 10 years you would have paid a total of $63.50, but with Class C shares you would have paid 1 percent for 10 years -- or $100."

DTC The larger your investment, the more Class A shares make more sense than B or C shares. That's because funds typically reduce or even waive the sales charge if you invest enough money -- tens of thousands of dollars, for example.

Before you choose A, B or C shares, clarify with your adviser what is involved with each and what makes the most sense for you.

Pub Date: 8/14/98

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