Investors who own shares of mutual funds are probably familiar with the 3 most common classes of shares: A, B, and C. But recent market conditions have led over 400 mutual funds to eliminate class B shares form their offerings.

The reason for the elimination is cost. It simply costs the fund company less to offer fewer classes of shares.

Class-A Shares charge a front-load commission that is taken off your initial investment.

Class B Shares often carry deceptively high annual fees.

Class C Shares charge a fee when you sell the shares.

The tracking and bookkeeping is apparently not worth the return on B class shares for many fund companies. Given the fact that class B shares can be automatically converted to Class A shares after a certain period of time, it’s easy to see why they can be an added hassle for fund companies. This is especially true if investors are trading more frequently, and the company would make more on the buy and sell loads charged from class A and C shares.

For a much more detailed overview of the definitions and differences of mutual fund share classes, see The ABCs Of Mutual Fund Classes at Investopedia’s site.

For a better option, you might want to look into ETFs. The only load they carry is the brokerage commission, which can be less than $10 at most online brokers.

There is no correlation to paying higher fees, and earning a greater return on your investment so why pay more?

Case studies.

Here are 3 big-name mutual fund companies that have recently eliminated their class B share offerings.

American Funds. Citing a loss of investor interest, American funds eliminated it’s B shares in April. Maybe the lack of investor interest was due to the fact that the B class shares charged investors a penalty if they were sold within 7 years of purchase.

Evergreen Investments is a subsidiary of Wells Fargo. They eliminated their class B offers in June stating a desire to respond to “client needs.”

Charles Schwab had no load funds anyway, but still eliminated its share classes for simplicity.

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