Manage Class B Mutual Funds

Class B shares are the second most preferred type of class stock. Occasionally, Class B shareholders are given more voting power than their Class A counterparts. In addition, Class B shares do not come with a front end sales load. However, there are potential drawbacks to Class B shares. As with every potential investment, carefully study the benefits and disadvantages to decide whether this type of share will work with your financial goals.

Work with your financial advisor to locate mutual funds that offer class shares. Not all funds have these types of shares, so you may need a professional to help you find and manage your funds.

Learn about the shareholder services and distribution arrangments for Class B shareholders for the funds in which you're interested. These services and arrangements will vary widely, so pay careful attention to what each mutual fund is offering you.

Find out whether the mutual funds you want charge a front end sales load, however slight. Although Class B shares are technically bought without a front end sales load, funds can charge a fee up to 1/4 percent and still be considered a 'no load' fund.

Ask about contingent deferred sales loads (CDSL) for early redemption. Most mutual funds waive the CDSL once you've owned the shares for a specified amount of time, usually around 6 years.

Consider the 12b-1 fee attached to most Class B shares. This fee pays for shareholder services, financial advisors and insurance agents. Class B shareholders are charged a 12b-1 fee annually until they sell or convert their shares.

Find out whether your Class B shares will convert into Class A shares in a few years. This will help you decide whether to invest in a mutual fund long term and will give you ideas on how to manage it.

Tips & Warnings

• If you want to manage mutual fund with class shares, it may be wise to start with Class B shares. You won't pay the front end sales load and there's a good chance your shares will convert to preferred Class A stock after 5 years.
• Watch out for exhorbant 12b-1 fees. Some mutual funds use these fees in place of front end sales loads. Unscrupulous brokers are encouraged to sell the Class B shares with the knowledge that they'll receive kickbacks from the mutual fund in the form of 12b-1 fees.

By ehow.com