Investing Assets & Markets Mutual Funds Mutual Fund Share Class Types How to Choose Which Works for You By Kent Thune Kent Thune Twitter Kent Thune has spent more than two decades in the financial services industry and owns Atlantic Capital Investments, an investment advisory firm, in Hilton Head Island, South Carolina. He's written hundreds of articles for a range of outlets, including The Balance, Kiplinger, Marketwatch, and The Motley Fool. learn about our editorial policies Updated on May 31, 2022 Reviewed by Michael J Boyle Reviewed by Michael J Boyle Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics. learn about our financial review board In This Article View All In This Article Class A Share Funds Class B Share Funds Class C Share Funds Class D Share Funds Class ADV Share Funds Class Institutional Share Funds Load-Waived Funds Class R Share Funds Choosing DIY or an Advisor Knowing Where to Look How to Find the Best Funds Average Expense Ratios Index vs. Actively Managed Funds Find out which mutual fund share class type is best for you. Photo: Adam Gault/Getty Images Mutual funds present a great opportunity for investment growth, but the number of fund options can be a bit overwhelming. There are several different types of mutual fund share classes, each with its own advantages and disadvantages. The primary differences in share classes are the fees and expenses associated with them. Choosing the right share class depends on whether you need advice from an advisor or if you're a do-it-yourself investor. How much of your investment dollars you want to spend on your fund management can also affect your choice. Key Takeaways There are several different types of mutual fund share classes, each with its own advantages and disadvantages.You can choose among Class A, Class B, Class C, Class D, Class ADV, Class Institutional Share Funds, Load-Waived Funds, and Class R.The primary differences among share classes are the fees and expenses associated with them. Class A Share Funds Class A mutual fund shares generally have front-end sales charges (also known as "loads"). The load, which is a charge to pay for the services of an investment advisor or other financial professional, is often 5% but can be higher. The load is charged when shares are purchased. For example, suppose you buy $10,000 worth of mutual fund Class A shares, and the "load" is 5%. You'd pay $500 as a commission, and you would have a total of $9,500 invested in the fund. Class A shares are best for investors who plan to invest larger dollar amounts and buy shares infrequently. If the purchase amount is high enough, you may qualify for "breakpoint discounts." Be sure to inquire about these discounts on the load if you plan to purchase additional shares of the fund (or mutual funds within the same fund family). Class B Share Funds Unlike the A shares, mutual fund Class B shares are a share class of mutual funds that do not carry front-end sales charges but instead charge a contingent deferred sales charge (CDSC) or "back-end load." Class B shares also tend to have higher 12b-1 marketing fees than other mutual fund share classes. Note Annual fees that cover the costs of distributions on mutual funds are 12b-1 fees, named after the SEC rule that allows the fees. For example, if an investor purchases mutual fund Class B shares, they will not be charged a front-end load but will instead pay a back-end load if they sell shares before a stated period, such as seven years, and they may be charged up to 6% to redeem their shares. You can exchange Class B shares for Class A shares after six to eight years. Therefore, they may be best if you do not have enough to invest to qualify for a break level (a discount on sales charges) on the A share but intend to hold the B shares for a longer time. Class C Share Funds Class C share mutual funds charge a "level load" yearly, which is usually a 1% fee. This expense never goes away, making C share mutual funds the most expensive if you're investing for the long term. That is why C share funds are best for brokers and investment advisors. If your advisor recommends C shares, ask them about A shares or B shares, both of which are better for time horizons of more than a few years. Note In general, use C shares for the short term (less than three years), and use A shares for the long term (more than eight years). If you plan to hold your B shares long enough, you can bypass the A share load with an exchange. Class D Share Funds Class D mutual funds are often similar to no-load funds. They are a mutual fund share class created as an alternative to the more common A share, B share, and C share funds. Class D funds tend to have yearly sales fees of around 1%. One of the most widely held D share mutual funds is PIMCO Real Return D. The PIMCO D share class is the only one from PIMCO that does not charge a load. It also has the lowest net expense ratio. Class ADV Share Funds Class ADV mutual fund shares are only available through an investment advisor, hence the abbreviation "ADV." These funds are typically no load (or are called "load waived") but can have 12b-1 fees up to 0.50%. If you are working with an investment advisor or other financial professional, ADV shares can be your best option, because the expenses are often lower. Class Institutional Share Funds Institutional funds (also called "Class I," "Class X," "Class Y," or "Class Z") are only open to institutional investors with minimum amounts of $25,000 or more. In some cases where investors pool money together, such as 401(k) plans, breakpoints can be met to use the institutional share class funds. This class tends to have lower expense ratios than other share classes. Load-Waived Funds Load-waived funds are mutual fund share class alternatives to loaded funds, such as A share class funds. As the name suggests, the mutual fund load is not charged. Typically, these funds are offered in 401(k) plans where loaded funds are not an option. Note Load-waived mutual funds are identified by an "LW" at the end of the fund name and the end of the ticker symbol. For example, American Funds Growth Fund of America A (AGTHX), an A share fund, has a load-waived option: American Funds Growth Fund of America A LW (AGTHX.LW). Class R Share Funds Class R share, or retirement, mutual funds do not have a load. Instead, they have 12b-1 fees that typically range from 0.25% to 0.50%. If your 401(k) only provides Class R shares, your expenses may be higher than if your choices included the no-load version of the same fund. One common R share fund family seen in 401(k) plans is American Funds. It includes funds with R1, R2, R3, or R4 (retirement classes) share classes. It's always smart to make sure you get matching contributions from your employer when you contribute to your own 401(k). Be sure to pay attention to the expense ratio if there is no employer match. If that ratio is high, you may choose to open your own account and find a no-load fund. Choosing DIY or an Advisor If you are not using an advisor, there is no need to invest in a certain share class. You should be using no-load funds, which are not technically a "share class." If you are using a loaded fund without an advisor, you're needlessly paying fees. You may be able to argue for paying a load if you're using a high-quality, actively managed fund. Note Skill and knowledge, while vital for an advisor, are trumped by sound judgment. The question of who to hire boils down to this: Do you want to hire yourself, or do you want to hire someone else? If hiring someone else, look for someone who works under a pay structure that promotes the greatest virtues of investing; humility, honesty, simplicity, moderation, and frugality. This list disqualifies most advisors who are paid only by commissions. Scratch off the ones incentivized by products they sell, as well. You don't need to be sold a product; you need an unbiased advisor paid by no one else but you. Some advisors and planners are just as susceptible to damaging emotions and poor judgment as an average investor. However, a good advisor will look at your money and help lay out a road map to follow. They should work to help you reach your financial goals while living your present life more fully. This might be worth paying for. Knowing Where to Look Choosing "the best" is tricky; what works for one person may not be good for another. However, some no-load fund companies provide the best experiences when it comes to mutual funds. There is no one-size-fits-all mutual fund or investment. Therefore, there is no single way to go about finding the best place to for investments, but you can narrow down the options by thinking about what matters most: a wide number of options and low expense ratios. Your choice should also have sound investment philosophies and experienced management. With these ideas in mind, four of the best no-load fund families include Vanguard Investments, Fidelity Investments, T. Rowe Price, and PIMCO. Note PIMCO has the best overall selection of actively managed bond funds. Also, not all of Fidelity's funds are no-load. They also have advisor shares and loaded funds. How to Research and Find the Best Funds You should do your own research, no matter which share class (or non-share class) you choose. That is easy to do, because there are many good online research tools. Most of them have the information you need to find the best no-load mutual funds. You can compare and screen different funds or find topics to read about to learn something new. Mutual fund research sites such as Morningstar can be helpful and easy to use. Search filters on the online tools allow you to narrow your search for no-load and load-waived funds. Average Expense Ratios for Mutual Funds Before doing your research, you need to know what to expect with mutual fund expenses. Here is a breakdown and comparison of average expense ratios for basic fund types: Large-cap stock funds: 1.25%Mid-cap stock funds: 1.35%Small-cap stock funds: 1.40%Foreign stock funds: 1.50%S&P 500 index funds: 0.15%Bond funds: 0.90% Note These averages are close approximations taken directly from Morningstar's website. You can also find similar numbers on most mutual fund research sites. When investing by yourself (directly with a mutual fund company or discount broker), you should never buy a mutual fund with expense ratios higher than these. Notice that the average expenses change by fund category. The fundamental reason is that research costs for portfolio management are higher for certain niche areas, such as small-cap stocks and foreign stocks, because the information is not as readily available as with large domestic companies. Index funds, on the other hand, are passively managed, which keeps costs extremely low. Index Funds vs. Actively Managed Funds Over long periods, index funds have higher returns than their actively managed counterparts for several simple reasons. Index funds, such as S&P 500 index funds, are built to match the performance of a stock market benchmark. Indexes (the benchmarks) are simply a list of investments that meet the index managers' criteria. Thus, there is no need for intense research and analysis. The index fund managers only need to mirror the index, which allows for less risk and lower expenses. Fund managers are human, which means they can make mistakes. By nature, an active fund manager's job is to beat the market, which means they must often take extra risks to obtain the necessary returns. Indexing removes this "manager risk." Note Index fund managers aren't trying to beat the market, so they can save you more money by curbing costs and keeping those cost savings invested in the fund. Best of all, the cost of managing an index fund is extremely low, compared to those funds that are actively engaged in outperforming the averages. Many index funds have expense ratios below 0.2%. Compare that to the average actively managed mutual fund expenses of around 1.5% or higher. On average, an index fund investor can begin each year with a 1.3% head start on actively managed funds. That may not seem like a large advantage, but a 1% annual lead creates a significant difference in the long run. Even the best fund managers in the world cannot keep beating the S&P 500 for more than five years, and a 10-year run of winning against the major market indexes is almost unheard of. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. FINRA. "Mutual Funds." U.S. Securities and Exchange Commission. "Distribution [and/or Service] (12b-1) Fees." Morningstar. "Descriptions of Share Class Types."