and they don’t charge a redemption fee after the first year. However, C shares charge an even higher annual fee than B shares, which you have to pay until you no longer invest in the fund.
Which share class should you choose? For many investors, A shares usually make the most sense. “A shares generally are easy to understand,” says Brian Portnoy, a senior analyst at Morningstar Inc. in Chicago. “B shares might lead you to believe there is no sales charge, but you may pay on the back end depending on how long you hold onto a fund. C shares are inappropriate for everyone because the sales charges just go on, year after year.”
Some fund loads can be deceptive, according to LeCount Davis, CFP, RIA in Bethesda, Maryland. “There’s no
load up front, but you have to pay a redemption fee if you sell that fund within a certain number of years,” he says. “In practice, most investors want to get out before the back-end load disappears so they wind up paying it.” Davis also says he never recommends C shares (level-load funds) because the ongoing expenses remain high.
Some funds have various other share classes, too. You can buy funds with D, Y, N, F, R, X, M, T, or Z shares. No matter what the label, you should know all the terms and conditions of a share class before choosing it. Your advisor should be able to explain them to you. After all, you’re paying those fees in order to receive sound advice. Be confident you’re getting what you pay for.
B.E.’s Top Mutual Fund Performers
So that you can identify vehicles that will give maximum returns over the long haul, we have identified 80 top-performing, low-cost funds by their three-year average annualized return. The ranking of each no-loader was also based on having the lowest expense ratios for its category.