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MANY LOAD MUTUAL funds have a bewildering array of share classes, each typically designated by a letter. Working with a financial advisor who is compensated through commissions? The broker will likely suggest one of three share classes:

A shares. These charge a significant upfront commission, often 5.75% for stock funds, and a modest ongoing 12b-1 fee, typically 0.25% per year. Despite the upfront cost, A shares are often the best choice if you use a full-service broker, especially if you’re a longer-term investors or you have a large sum to invest. If you invest a significant sum with one mutual fund company, or once your account has grown large enough, the upfront purchase commission can be sharply reduced. Ask your broker about so-called rights of accumulation.

B shares. These funds charge a hefty annual 12b-1 fee, usually 1%, and a back-end commission if you sell in the first five or six years. That so-called contingent deferred sales charge might scale down from 5% to 1% as you hold the fund for longer. If you have a modest sum to invest and, say, an eight-year time horizon, these can occasionally be the best share class to buy. But most of the time, you would fare better with another share class, given the sizable 12b-1 fee on B shares and the fact that the back-end commission isn’t reduced if you invest large sums.

To curb abuses, fund companies sometimes cap the amount that can be invested in B shares at $100,000. Dishonest brokers may try to sidestep this restriction and earn larger commissions by spreading an investor’s money across multiple fund companies. Dishonest brokers may also pitch B shares as having “no initial commission,” while neglecting to mention the back-end sales charge.

C shares. These shares might charge a 1% commission if you sell in the first year. After that, there’s no back-end commission. You will, however, incur a large annual 12b-1 fee that’s often 1%, similar to B shares. But while B shares can convert to A shares after perhaps seven years, at which point the 1% 12b-1 often drops to 0.25%, this never happens with C shares. The upshot: C shares make most sense for those who are investing for only a few years.

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