by Archie M. Richards, Jr., CFP^®
April 21, 2003

The "B shares" of a "load" mutual fund are never the right choice. Select A or C shares instead.

No matter which shares of a load fund you buy, the broker and the brokerage firm get paid immediately after you make the purchase.

• With A shares, the money comes directly from your account.

• With B and C shares, the mutual fund organization pays the commission out of its own money. The amounts vary from fund to fund, but a common amount is 5 percent for B shares and less for C shares. The mutual fund organization is refunded by charges against the investor's account.

For B shares, the two kinds of charges are as follows:

• A percentage charge if you withdraw the money within six years. The cost is usually 6 percent of the amount withdrawn in the first year, 5 percent in the second year, and so on, down to 1 percent in the six year.

• An additional charge of 1 percent per year for six years. Some funds continue for up to ten years. Mind you, these expenses are in addition to the amounts charged by the mutual fund for managing the money.

When offering B shares, the broker may say, "No commissions are charged, and if you hold for six years, it's just as if you'd bought a no-load fund."

Baloney! Even though they're called "expenses," the withdrawal charge and the annual charges are indeed commissions. The costs of no-load funds are considerably less. They charge no commissions or commission expenses at all.

When you buy "load" funds that involve commissions, choose A shares if you intend to hold the fund for many years and C share if you don't.

With A shares, your account is charged the commissions up front, as mentioned. The percentage depends on the amount invested. Here are common charges:

Up to $25,000 5.25 percent Over $25,000 4.75 percent Over $50,000 4.00 percent

These segments are called "breakpoints." For investments over $100,000, the percentages are reduced even more.

If you declare your intention to invest more within 13 months, your commission may be reduced. For example, if you invest $10,000 initially but declare the intention to put in an additional $20,000 within 13 months, you're charged only 4.75 percent on the $30,000 total from the beginning.

If you invest over $50,000 in B shares, the broker makes more money (and you therefore net less) than if you put the money into A shares. The broker's commission on the B shares is 5 percent. Because of the breakpoint on $50,000 of A shares, he would earn only 4 percent.

Even with investments of less than $25,000, the broker may still suggest B shares. Many people believe that B shares have no commissions. The broker therefore feels he has a better chance of making the sale.

Don't be fooled. B shares have no charges that are called commissions, true, but you pay commission expenses nevertheless. B shares are never the right choice. The lowest commission expense you'll incur is 6 percent. Even for an investment of less than $25,000, you're better off with A shares, costing 5.25 percent.

If you intend to be in the fund for only a few years, choose C shares. These incur no front-end commission. But the account is charged 1 percent a year indefinitely. If you end up staying in the fund for 30 years, you'll pay 30 percent.

Bad idea. C shares are only for short-termers. If you intend to remain in the fund for two years, for example, why put your money at risk at all? Short-term market moves are unpredictable. If you know you'll need the money in two years, buy a two-year bond and let it go at that.

Acquire A shares if you intend to hold the fund for many years and C shares if you don't. Stay away from B shares. They're better for the broker and worse for you.

Costs count. Read the prospectus. If you don't understand it, choose another fund.