Share classes are different types of shares within a single mutual fund or pooled investment vehicle with varying fee structures, investment minimums, and other features.
Which share class typically charges a front-end load and has a lower expense ratio than other share classes?
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Select an option above to see an explanation here.
A) Class A shares typically charge a front-end load and have a lower expense ratio than other share classes. B) Class B shares typically charge a back-end load and have a higher expense ratio than Class A shares. C) Class C shares typically charge a level load and have a higher expense ratio than Class A shares. D) No-Load funds do not charge a front-end or back-end load.
What is a breakpoint in the context of mutual fund share classes?
A) The expense ratio is not directly related to breakpoints. B) A breakpoint is the level of investment in a mutual fund at which the front-end load is reduced or eliminated. C) Breakpoints do not apply to back-end loads. D) Breakpoints are not related to fund performance evaluations.
In the late 1990s, many mutual fund companies began offering multiple share classes for their funds to cater to different types of investors. This development allowed investors to choose the share class that best met their needs regarding fees, investment minimums, and other features.
Which type of pooled investment vehicle is NOT a mutual fund and trades on an exchange like a stock?
A) ETFs are similar to mutual funds but trade on an exchange like a stock and typically have lower expense ratios. B) Closed-End Funds are also not mutual funds and trade on an exchange like a stock, but the question asks for one answer. C) Hedge Funds are pooled investment vehicles but do not trade on an exchange like a stock. D) Class A Shares are a type of share class within a mutual fund, not a separate pooled investment vehicle.
An investor with a large sum of money may purchase Class A shares of a mutual fund, as the front-end load will be reduced or eliminated due to the breakpoint, and the lower expense ratio will result in lower ongoing fees.
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Example Series 65 Example Practice Question
A - At purchase (Class A shares have a front-end sales load) B - Back-end fees (Class B shares charge a back-end sales load) C - Continuous costs (Class C shares have ongoing level loads)
- Sales charge: A fee an investor pays when purchasing or redeeming shares of a mutual fund or other pooled investment. - No-load fund: A mutual fund that does not charge a sales charge or commission when an investor buys or sells shares. - 12b-1 fee: An annual fee a mutual fund charges to cover marketing and distribution expenses. - Front-end load: A sales charge paid by an investor when purchasing shares of a mutual fund, typically as a percentage of the investment amount. - Back-end load: A sales charge paid by an investor when selling shares of a mutual fund, typically as a percentage of the investment amount. - Breakpoint: A level of investment in a mutual fund at which the sales charge is reduced or eliminated.
- Sales charge example: An investor buys $10,000 worth of shares in a mutual fund with a 5% front-end load, resulting in a $500 sales charge. - No-load fund example: An investor buys $10,000 worth of shares in a no-load mutual fund, paying no sales charge or commission. - 12b-1 fee example: A mutual fund charges a 0.25% 12b-1 fee, resulting in a $25 annual fee for an investor with a $10,000 investment. - Front-end load example: An investor buys $10,000 worth of shares in a mutual fund with a 5% front-end load, paying a $500 sales charge upfront. - Back-end load example: An investor sells $10,000 worth of shares in a mutual fund with a 3% back-end load, paying a $300 sales charge upon selling. - Breakpoint example: A mutual fund offers a breakpoint at $50,000, reducing the front-end load from 5% to 4% for investments above this amount.