Mutual funds benefit investors by allowing them to partake of the gains and income from a high-value professionally-managed portfolio. The expenses associated with a mutual fund's management are satisfied by fees withdrawn from holders' accounts on both an annual basis and when purchased or sold. Mutual fund units designated as A-shares and B-shares differently allocate the manner in which these fees are charged.
Mutual funds are large investment portfolios owned by several parties. Mutual fund portfolios are assembled and managed by a mutual fund company from the contributions of several interested investors. These investors each own a number of the mutual funds total units proportionate to the amount of their contribution. Mutual funds are predicated on the notion that the benefits of portfolio investing are best derived from high-value portfolios valued in the range of several million dollars.
A mutual fund portfolio is subdivided among numerous owners into units. Each unit represents a an ownership stake in the portfolio and entitles the holder to gains and losses in the funds value as well as distributions of dividend and interest income. Unlike shares of stock, mutual fund units cannot be traded on an exchange and must often be held for a definite term before the investor has the option of selling them.
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Mutual fund A-shares are primarily characterized by fees charged at the time investors purchase the units. Called front-end load fees, these fees are subtracted from the total cost of the units. As a result, only the difference between the sale price and the fees is actually invested in the mutual fund portfolio. Advantageously, the front-end load fees offset the annual fees charged in connection with assets that are bought and sold as part of the portfolio's management. These fees are charged more heavily on C-shares
Mutual fund C-shares do not charge fees at the time of purchase, which means that the mutual fund company invests the entire cost paid in the mutual fund portfolio. The cost-free purchase of these units is offset by higher annual fees associated with asset sales and purchases executed as part of the management of the portfolio. These fees are charged as one percent of the total value of the units an investor holds. This percentage remains unchanged for as long as the shares are held.