Class B shares
Also known as: b shares, back-end load shares, contingent deferred sales charge shares
Class B shares are mutual fund shares sold without a front-end sales charge but subject to a contingent deferred sales charge if you redeem within a set number of years. They are also known as back-end load shares.
Class B shares are one of the standard mutual fund share classes. Instead of deducting a sales charge when you buy, the fund charges you on the way out: redeem too soon and you pay a contingent deferred sales charge (CDSC), which is why Class B shares are commonly called back-end load shares. The entire amount you invest goes to work immediately, since nothing is skimmed off at purchase.
The CDSC declines on a schedule — for example 5% if you redeem in year one, 4% in year two, and so on until it reaches zero after six or seven years. Once the CDSC period expires, many funds convert the B shares into Class A shares, which carry lower ongoing expenses. Class B shares also charge higher annual 12b-1 distribution fees than Class A shares for as long as you hold them, so the cost is spread across the holding period rather than paid up front.
That structure makes Class B shares suited to a long-term investor with a modest amount to invest who intends to hold past the CDSC schedule. They are a poor fit for someone who may need the money soon, and they are usually the wrong choice for a large investment, since Class A breakpoints can cut the front-end load dramatically at higher purchase amounts. Class B shares have become far less common as firms have moved away from deferred-load structures.
Share class comparison is a recurring topic on the Series 6, Series 65, and Series 66 exams. You should be able to state that Class A shares carry a front-end load, Class B shares carry a back-end load (CDSC) with higher 12b-1 fees, and Class C shares carry level annual charges with little or no front-end load — and then pick the right class for a given investor's amount and time horizon.
Key takeaways
- Class B mutual fund shares are also known as back-end load shares because they charge a contingent deferred sales charge on redemption.
- The CDSC declines each year and eventually reaches zero, often triggering conversion to Class A shares.
- Class B shares carry higher ongoing 12b-1 fees than Class A shares, so cost is paid over time rather than up front.
- They suit long-term investors with smaller amounts; large purchases usually do better with Class A breakpoints.
- The Series 6, Series 65, and Series 66 exams all test which share class fits a given investor profile.