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# What Is a Class C Share?

Aug 31, 2021


Class  C shares are a class of mutual fund share characterized by a level load  that includes annual charges for fund marketing, distribution, and  servicing, set at a fixed percentage. These fees amount to a commission  for the firm or individual helping the investor decide on which fund to  own. The fees are charged annually. 


In  comparison, a front-end load carries charges paid when the shares are  bought and a back-end load assesses charges when the investor sells  shares; and no-load funds contain no commission charges at all, with the  fees simply calculated into the net asset value (NAV) of the fund.




The Basics of Class C Shares

Compared to other mutual fund share classes, class C shares often have lower expense ratios than class B shares.  However, they have higher expense ratios than class A shares. Expense  ratios are the overall annual management costs of running a mutual fund.  As a result, Class C shares may be a good option for investors with a  relatively short-term horizon, who plan to keep the mutual fund for just  a few years. 


The ongoing charges that constitute the C-share level load are officially known as 12b-1 fees, named from a section of the Investment Company Act of 1940.  Total 12b-1 fees are capped at 1% annually. In this 1% fee,  distribution and marketing expenses can be up to 0.75%, while service  fees max out at 0.25%. Although designated for marketing, the 12b-1 fee  primarily serves to reward intermediaries who sell a fund’s shares. In a  sense, it’s a commission paid by the investor to the mutual fund every  year, instead of a transactional one. 


Other  mutual fund share classes come with 12b-1 fees too but to different  degrees. Those fees charged to class A shares usually are lower,  compensating for the high upfront commissions this category pays.  C-shares tend always to pay the maximum 1% and, since 12b-1 fees figure  into the mutual fund’s overall expense ratio, their presence can push  that annual expense ratio above 2% for the class C-shareholder. 


Unlike A-shares, class C shares do not have front-end loads, but they often carry small back-end loads, officially known as a contingent deferred sales charge (CDSC),  just as class B shares carry. However, these loads for C shares are  much smaller, typically only around 1%, and they usually vanish once the  investor has held the mutual fund for a year. 




Who Should Invest in Class C Shares?

Because  of the back-end load charged on short-term redemptions, investors who  plan to withdraw funds within a year may want to avoid C-shares. On the  other hand, the higher ongoing expenses associated with C-shares make  them a less-than-ideal option for long-term investors. 

The  differences in final values of investments with varying fees can be  immense when held for a substantial period—say, in a retirement fund.  For instance, take a $50,000 investment in a fund that returns 6% and  charges annual operating fees of 2.25%, that is held for 30 years. The  final amount the investor will receive will equal $145,093.83. A fund  with the same amount invested and the same annual returns, but with  yearly operating fees of 0.45% will offer the investor significantly  more, with a final value of $250,832.55. 

Class  C shares would work best for investors planning to keep the fund for a  limited, intermediate period, optimally more than one year but less than  three. That way, you hold on long enough to avoid the CDSC, but not so  long that the high expense ratio will take a major toll on the fund’s  overall return. 

Real World Example of Class C Shares

The Calamos  Growth Fund is an example of a fund with both class A and class C  shares. The class A shares charge an expense ratio of 1.40%. Of this  amount, 0.25% is a 12b-1 fee. They have a maximum of 4.75% front-end  load that decreases based on the amount that is invested. The fund’s  class C shares don’t have a front-end load, but they carry a maximum 1%  CDSC on shares held less than one year. The class C shares also impose  the maximum 1% 12b-1 fee, pushing the fund’s overall expense ratio to  2.15%.