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How Mutual Fund Share Classes Work and Best Mutual Fund Lists

written by: Brian Nelson•edited by: Rebecca Scudder•updated: 1/26/2009

Investing in mutual funds means you need to understand share classes. Only then, are you ready to look at the Top 10 or Best Of lists.

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    Understanding the Types of Mutual Funds

    There are many different kinds of mutual funds. The first step in any guide to understanding mutual funds is to understand mutual fund share classes.

    • No-Load Mutual Funds – No load mutual funds are mutual funds which do not have a sales charge or commission.
    • A Shares – Also known as front-load mutual funds, A share class mutual fund charge investors an up-front fee or commission when purchased. The amount of the fee is usually on a sliding scale that gets smaller as the invested amount gets larger. A shares usually have the lowest expense ratio of all the share classes.
    • B Shares – Also known as back-load mutual funds, B share class mutual fund shares have no up-front fee or commission when they are purchased. However, if the investor sells the shares before a certain number of years are up, a fee or commission will be charged on the sale.
    • C Shares – Sometimes referred to as level load, C share class shares do not charge an up-front fee nor do they charge a fee when they are sold. However, they have a higher expense ratio (usually 1% higher than the same A shares). They are not the same as no-load funds.
    • Other Shares – There is no limit to the number of share classes a mutual fund can have. Some mutual fund companies will only have one share class, while others have dozens of them. The most common are for use in retirement plans like 401(k) plans. Some companies call these R shares, though there is a lot of variety.

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    Top Mutual Fund Companies

    Ranking the best mutual fund companies is a tough proposition. One of the biggest obstacles in such a ranking is that virtually all fund families have some truly bad mutual fund offerings, while some bad mutual fund families have a few truly good mutual fund offerings.

    However, many publications and websites try to rank the Top 10, Top 25, or Top 100 mutual fund companies. Even more try to rank the top mutual funds, which is a bit more accessible as it avoids the problem of fund families that have one or two good or bad funds throwing off the rankings.

    The best advice when looking at mutual fund companies and rankings is to KNOW THE SOURCE. There are a lot of websites out there that have very trustworthy and important sounding names that are nothing more than a college student behind a keyboard. Until you know more about the source of the information stick to publications you already know and trust.

    • Top 10 Mutual Funds – Forbes Magazine publishes an “honor roll” of its 10 best mutual funds.
    • Top 25 Mutual Funds - Personal finance magazine Kiplinger publishes the Kiplinger 25 which is its list of the best no-load mutual funds.
    • Top 70 Mutual Funds -Money Magazine for example publishes its Money 70 list which is its list of the best mutual funds you can buy.

    As always, the key to successful investing when it comes to mutual fund investing or any other kind of investing is knowledge and research. Start with the resources here, and then keep coming back. The Investing Channel has loaded up on talented and skilled writers. You don’t want to miss out.