How are a mutual fund's C shares different from A and B shares?

Class C shares are a type of mutual fund shares. Mutual fund shares are divided up into three classes: class A shares, class B shares and class C shares. Each class of mutual fund shares are distinguished by their specific load fees and structures.

The main differentiating factor between class C shares and the other two mutual fund share classes is that class C shares are level-load. This means the total amount of money paid to the mutual fund is actually invested in shares. Instead of a percentage of the initial investment, commissions are paid to the mutual fund via annual fees.

Class A shares charge a front-end load. When someone invests in a mutual fund, a specific percentage of that initial investment is taken out as a commission for the mutual fund's managers. Compared to class C shares, a smaller amount of money is invested in class A shares, since a percentage of that investment is taken as commissions.

Class B shares charge a back-end load. The initial investment buys the mutual fund shares like the class C shares. When the investor is ready to sell the shares, however, a specific predetermined percentage is deducted from the gains and paid to the fund's managers in the form of commissions. Class B shares can also be converted into class A shares if the investor would like, while class C shares cannot be converted.

Class C shares are advantageous because they let an investor spread out his commission payments and allow the entire investment amount to be invested, which could result in higher returns.