A Share Mutual Funds Vs C Share Mutual Funds

Introduction:

The comparison between A Shares and C Shares have always been a topic of keen interest to investors and experts. For those who have never heard of these terms before, do not sweat. Class A shares levy a front-end load that will be waived off from your first investment while Class C stocks is more of a level-load investment. Still didn’t get it? Read on.

When you buy an A-share, a part of the amount you paid is for the aforementioned front-load. And the front-load charge becomes lesser as you invest more. For example, if a company’s peak load is, say, 5.50 percent, but you invest more than the standard amount, it could be brought down to, say, 4.5 or 4 percent. A-share mutual funds also levy a 12b-1 charge (known as a trail) that goes as brokerage.

Now a C Share is nothing like this. It doesn’t have any front-load but so as to recompense the stockbroker, the mutual fund imposes more 12b-1 fee, which will be charged for throughout the period you possess the fund. And there will be no deductions for putting in more money like it has for A Share. This makes it more likely that C Shares could be costlier for long term investment. But both have their own pros and cons.

Class A Shares

SL No Advantages Disadvantages
1 Lower 12b-1 charges: Class A Shares mostly have nominal 12b-1 fees. So holding on to these for several years could work out viable for you. More Investment Needed in the Beginning: Customers, who do not have the resources to stretch to any breakpoint prior to the closing date designated by a letter of intent, will have to shell out front-end charges consistently.
2 Breakpoints: This is the name of rebate given to the investor on front end load fees every time the amount bar is raised. For instance if the initial breakpoint is INR 50,000, you may deposit that money initially to get your first rebate. Extended Horizon Needed: These amount are not ideal for shareholders with a short period horizon. For instance, say your first investment is INR 9500 once INR 500 is deducted as front-load charges and there is a hike of 2 percent in a year. Liquidating this at the year end, will lose you a certain amount.
3 Right of Amassing: This provides you the chance to get a rebate on the front-end load rate if you cross the first breakpoint with the second payment. For example, say the initial breakpoint is INR 50,000 and the first investment is INR 20,000. If you put in INR 30,000 to cross that breakpoint on the next installment, you would get a rebate on the front-load charges.  
4 Letter of Intent: Certain firms also offer front-end load rebates directly to investors who shows interest in investing money over a particular breakpoint.  

Class C Shares

SL No Advantages Disadvantages
1 Zero Front-End Charges: Your whole contribution towards the first investment fetches you good returns from interest. Back-End Load: A back-end load could be minimal; albeit it is usually charged if you withdraw your mutual fund in the initial year.
2 Nominal Back-End Load: The back-end load is normally only up to one percent. More Expense Ratios: Although the expense ratios of Class C shares are lower than those of Class B shares, they are higher than those for Class A shares.
3 Opportunity to Avoid Back-End Load: The back-end load is generally taken off after the stocks have been in possession for at least a year. Zero Scope for Conversion: This is nothing like Class B Stocks where is easily convertible to Class A, leaving you with no chance to cut down the expense ratios. Hence Class C is best avoided if you are planning for a longer term of investment as the management charges are not going to drop.
4   Zero Rebates: Class C stocks do not give concessions on costs incurred in the process of the account reaching any level.

GST rate of 18% applicable for all financial services effective July 1, 2017.

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