# B Shares

## What it is:

B shares are a type of mutual fund share.  They are distinguished from A shares and C shares by their load (fee) structure.

## How it works (Example):

B shares have a "back-end load."  This means that the entire initial investment amount is invested into mutual fund shares, but when the investor is ready to sell the shares, a certain percentage is deducted and paid to the mutual fund as commission.  Therefore, the investor receives less than the total value of the investment when the shares are sold.  B shares can be converted into A shares if the investor decides the front-end load payment structure is more advantageous.

A shares have a "front-end load" fee structure.  A certain percentage of the initial investment is taken out as commission up front.  Therefore, the total amount invested in the mutual fund is the initial investment amount less the commission.

C shares have a "level-load" fee structure.  This means the full amount of money paid to the mutual fund is invested in shares, but commissions are paid annually.  This level-load structure is unique to C shares. Also -- unlike B shares -- C shares are cannot be converted into A shares.

Let’s relate all of these differences in an example:

Joe invests his \$1,000 in B shares with a 5% commission; he would not pay any commission upfront.  But, if he decides to sell his B shares after a 10% gain, he would owe a commission of \$1,100 x 5% = \$55 when he sells his shares and he will pocket the remaining \$1,045.

Now let's assume, Joe invests \$1,000 into A shares of a mutual fund.  He buys A shares with a 5% commission.  With their front-end load structure, 5% of Joe’s \$1,000 investment would be deducted immediately as commission. Only \$950 of Joe’s money would be invested in mutual fund shares, but he would not owe any more commission fees to the fund. If Joe’s investment grows by 10%, he would keep all of the \$1,045 if he sells his A shares after one year

If Joe buys \$1,000 of C shares, because they are level-load shares, the full \$1,000 goes toward buying shares.  But regardless of the fund's performance, Joe pays an annual commission fee to the fund.

## Why it Matters:

B shares allow investors to pay commission at the end of the investment period. This gives investors the opportunity to invest the entire initial amount into the fund’s shares.  But, back-end load commission fees mean investors need to have a higher yield on their investment in order to achieve a positive return once the shares are sold and the commission is paid.

Funds must disclose their fees to potential investors. Most advisors consider expense ratios of less than 1% to be reasonable.

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