What Are Preferred Class B Stocks?
- A mutual fund, or a unit trust, is a professionally-managed investment portfolio assembled using money gathered from several contributing investors. In return, investors are granted ownership stakes in the portfolio called units. Mutual fund companies assemble a variety of portfolios with a ranging of risk levels as well as growth and or income goals. Mutual funds are assembled based on the understanding that measurable, worthwhile financial gains are derived from holding stakes in the range of several hundred to millions of dollars.
- Ownership stakes in a mutual fund are distributed as shares called units. Mutual fund companies sell units of a given portfolio for a minimum investment amount in the thousands of dollars. In return, the buyer receives units of the portfolio that entitle him to gains (and losses) in the overall value of the portfolio as well as periodic dividends called distributions. Unlike shares of stock, mutual fund units are not traded in a market and may be bought and sold according to provisions set forth by the mutual fund managers.
- The popularity of mutual funds lies mainly in their automatic diversification and management. As a result, mutual fund companies charge management fees in return for this service. Depending on the class of units an investor purchases, these fees may be charged at the time of purchase (front-end load), at the time of sale (back-end load) or each year for as long as the units are held.
- Class B shares are mutual fund units that charge holders a back-end load fee at the time they choose to sell. Mutual fund companies usually require that class B shares be held for a minimum number of years before they are eligible for sale. At the time of purchase, holders are charged zero, or minimal, front-end fees and lower annual fees than those charged to class C shares. Class C shares have higher annual fees, but a lower front-end and back-end load. For comparison, class A shares have a heavily-weighted front-end load, with lower annual fees and little or no back-end load at the time of sale.
- Each class of units charges management fees differently. This variety is intended to offset the negative affects of such fees for the holder. Class B shares are an advantageous choice for investors seeking growth and or income over an investment horizon of several years with no expectation of selling in the interim.
