Mutual funds are investments that combine money from multiple investors. A Class A mutual fund is a category of fund that charges up-front sales fees for purchasing shares. This type of fee is often called a front-end load or front-end sales load. In many cases, investors prefer to invest in other classes of mutual funds and reserve purchases of Class A shares for funds with very good histories of performance. For example, a person may choose a Class B or C fund or even a fund that does not charge sales fees at all.
When a person invests in a mutual fund, he pools his investment money with that of multiple other investors. The fund's manager invests this money and builds the fund’s portfolio. Mutual funds are separated into different classes. With Class A mutual funds, investors pay a load, which is a sales commission for purchasing shares, at the time of their investment.
Class B and C shares may also charge loads. With a Class B mutual fund, however, an investor typically pays a load when he sells his shares. A Class C mutual fund investor typically pays a load each year for as long as he owns shares.
To understand Class A mutual funds, it helps to consider an example. For instance, if a person invests $5,000 US dollars (USD) in a mutual fund and pays a 4% load, he will pay $200 USD just to invest in the mutual fund. On top of the load, he also may face annual fees as an owner of Class A mutual fund shares. The front-end load and yearly fees mean the fund must perform very well in order for the investor to break even on his investment and also profit from it.
Many financial experts view the up-front load of Class A mutual funds as a disadvantage of this type of investment. In some cases, however, an investor may decide it is worth it to invest in this type of fund if he will hold onto his shares for a long period of time. In such a case, he may recoup the money lost on sales fees over time and enjoy a profit from his investment. This may, however, translate into a commitment to keeping the shares for several years. Additionally, if a fund has performed well for at least a decade and the investor believes it will continue to do so, he may decide the earnings potential is worth the expense associated with Class A mutual funds.