All information relating to the mutual funds sales charge are required by law to be included in the prospectus of a mutual fund that must be presented at or before the sale. Many funds have either a front-end load (known as Class A shares) or a back-end load (known as Class B shares) sales charge. The sales charge information is included in the Fees and Expenses section of the prospectus. All the money invested in B shares will go directly to the mutual fund investment. The number of shares is determined by dividing the investment amount by the closing price of the mutual fund referred to as the Net Asset Price (NAV). All the money invested in A shares will actually not go directly to the investment because the sales charge will be applied before determining the number of shares purchased. Although, the sales charge will actually not be taken from the investment. Instead, the mutual fund price offered to the public (POP) will be determined. The POP is the NAV divided by (100% - sales charge). For example: Consider investing $1000 in a mutual fund with a 5% sales charge with a closing price (NAV) of $50. The number of B shares purchased will be $1000 / $50 = 20 shares. The number of A shares purchased will be $1000 / (($50 / (100% - 5%)) = $1000 / ($50 / .95) = $1000 / $52.63 = 19 shares. It looks like your full amount is invested in A shares, but the price is instead increased to account for the sales charge.

     You are probably wondered why anyone would purchase A shares. A reason is because the annual fees for maintaining the fund are higher for B shares than A shares. (Note: All funds will have some amount of annual fees) Also, whenever you decide to sell A shares there will be no charge, but there is a deferred sales charge for B shares that are sold. The deferred sales charge reduces each year until it reaches zero in usually 6 years, then there is no sales charge for selling the shares. After typically the 8th year the shares are automatically changed to A shares with no sales charge to take advantage of the lower annual fees. The prospectus also contains a section showing the costs for each of the types of shares to help you determine which ones you should purchase. The chart is an excellent tool for helping to compare the costs associated with different mutual funds.

     Some funds will automatically convert B shares to A shares when the account reaches a certain value. When that occurs, there will be a sales charge applied. The sales charge will be lower than if originally invested in A shares. The reason is because the sales charge for A shares is reduced and is dependant upon the value of the account. The more in the account, the lower the sales charge for subsequent investments. Again, that information is in the prospectus.

     The sales charge can be reduced by investing in the same fund family instead of spreading out your investments among different fund families. For instance, anyone living in the same home investing in the same fund family can have their total investments combined to take advantage of a lower sales charge by a policy referred to as the rights of accumulation. If you have money invested in say American Fund® and others in Fidelity®, then different sales charges will be levied since the investments are spread-out while if all your investments were in the same fund family, then you can take advantage of the lower sales charge. Therefore, pick a good fund family before investing to save you money by investing in the same fund family.


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