Class C Share

Class C shares are a class of mutual fund share characterized by a level load that incorporates annual charges for fund marketing, distribution, and servicing, set at a fixed percentage. These fees amount to a commission for the firm or individual assisting the investor with settling on which fund to claim. 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 just 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 frequently have lower expense ratios than class B shares. Be that as it may, they have higher expense ratios than class A shares. Expense ratios are the overall annual management costs of running a mutual fund. Thus, Class C shares may be a decent option for investors with a relatively short-term horizon, who plan to keep the mutual fund for just a couple of years.

The continuous charges that comprise 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 really depend on 0.75%, while service fees max out at 0.25%. Although designated for marketing, the 12b-1 fee primarily rewards intermediaries who sell a fund's shares. As it were, it's a commission paid by the investor to the mutual fund consistently, instead of a transactional one.

Other mutual fund share classes accompany 12b-1 fees too however to various 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.

Dissimilar to A-shares, class C shares don't have front-end loads, however they frequently carry small back-end loads, officially known as a contingent deferred sales charge (CDSC), just as class B shares carry. Be that as it may, these loads for C shares are a lot smaller, typically just around 1%, and they usually vanish once the investor has held the mutual fund for a year.

Pros

No upfront commission—entire deposit is invested
No back-end sales charge after one year
Good intermediate-term (1-3 years) investment

Cons

High expense ratios
Back-end load on first-year withdrawals
Not good for a buy-and-hold strategy

## Who Should Invest in Class C Shares?

Because of the back-end load charged on short-term redemptions, investors who plan to withdraw funds in something like a year may want to avoid C-shares. Then again, the higher continuous expenses associated with C-shares make them a not great option for long-term investors.

The differences in final values of investments with varying fees can be massive 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 a very long time. The final amount the investor will receive will equal $145,093.83. A fund with the same amount invested and the same annual returns, yet 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 turn out best for investors planning to keep the fund for a limited, intermediate period, optimally over one year yet under three. That way, you hold on long enough to avoid the CDSC, yet 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 An 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, yet they carry a maximum 1% CDSC on shares held short of what one year. The class C shares also impose the maximum 1% 12b-1 fee, pushing the fund's overall expense ratio to 2.15%.

Highlights

Because the annual fee can compound investor cost after some time, this class of fund is best-appropriate for those hoping to hold fund shares for periods of 3 years or less.
This can be contrasted with front-load shares that charge investors at season of purchase and back-end loads that charge at season of sale.
Class-C mutual fund shares charge a level sales load set as fixed percentage assessed each year.