Many mutual funds are divided into different share classes designated by a particular letter, such as Class A. The most important difference between these classes is the loads, or sales charges, and fees investors must pay. Every fund company has a different fee structure for its funds, but many classes are common among fund companies. For instance, Class A shares normally have a sales charge when the shares are purchased, while a Class B share sales charge is taken when the shares are sold. However, Class C and D shares are not as universal in terms of fee structure.
Class C Shares
Class C shares are normally structured for investors who want to make a short-term investment in a fund. Thus, they have a small sales charge, or no load at all, but have a fairly high annual fee. That means the longer an investor holds the shares, the more he pays in expenses. But if he buys and sells within a short period of time, he will not pay the annual charge over and over and over. That said, these funds might have a 1-percent sales charge if sold within a year of purchase to discourage a very short-term investment.
Class D Shares
Class D shares are less common than Class A, B or C, and their fee structure may vary greatly depending on the fund company. The most common setup involves a deferred, or back-end load, meaning a sales charge is taken when shares are sold. However, this structure differs from the more common back-end load B shares, for instance, in the percentage charged, or if the percentage is charged on the original purchase price or the final sale price. Another Class D fee structure has no sales load, but has an annual fee. Again, this structure would differ from the company's Class C structure, however.
One similarity between Class C and Class D shares is that, if they are both structured to avoid upfront sales charges, they can be touted by the fund company as "no load" shares. The downside is that, in this case, both classes most likely charge shareholders an annual fee in lieu of the sales charge. Even if there is no front- or back-end cost, investors are paying expenses out of their holdings every year.
Know Your Fees
If Class C and Class D have differing fee structures, investors need to determine which setup is best for their investment goals. For instance, while many Class C shares are designed for short-term investment, Class D shares may be structured in the opposite way, with a load but without high annual fees. That is why investors need to be aware of exactly how their chosen company's share classes work. Class C and D shares may have similar charges at one firm and very different ones at another.