Class C Shares Definition And Pros & Cons Of Investing In Them
Published: October 27, 2023
Learn about the definition and pros & cons of investing in Class C shares in the finance sector. Expand your knowledge and make informed investment decisions.
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Class C Shares Definition and Pros & Cons of Investing in Them
Are you considering investing in Class C shares but unsure about the potential benefits and drawbacks? Look no further! In this blog post, we will provide you with a comprehensive overview of Class C shares, their definition, and the pros and cons of investing in them. By the end of this article, you’ll have a clear understanding of whether Class C shares are the right investment option for you.
- Class C shares are a type of mutual fund or exchange-traded fund (ETF) share that is often designed for shorter-term investors.
- Investing in Class C shares can provide higher liquidity and the potential for capital gains, but they often come with higher expenses and lower potential long-term returns.
What Are Class C Shares?
Class C shares are a type of mutual fund or exchange-traded fund (ETF) share. They typically have a lower upfront cost compared to other share classes, such as Class A or Class B shares. However, they often come with higher ongoing expenses and potentially a contingent deferred sales charge (CDSC), which is a fee you have to pay if you sell your shares within a specific time period.
Unlike Class A shares, Class C shares usually do not have a front-end sales load. This means you won’t be charged a fee when you initially purchase the shares. Instead, you may face a CDSC if you decide to redeem your Class C shares within a specified time, typically within a year or two. Class C shares are generally designed for shorter-term investors who do not plan to hold their investment for an extended period.
The Pros of Investing in Class C Shares
- Liquidity: Class C shares generally offer higher liquidity than other share classes. This means that you can buy or sell your shares at any time without facing excessive fees or penalties.
- Lower upfront costs: Compared to Class A shares, Class C shares often have lower upfront costs, making them more accessible for investors with smaller initial investments.
- Potential for capital gains: If the underlying investments of the mutual fund or ETF experience capital appreciation, Class C shares allow investors to participate in those gains.
- Flexibility: Class C shares provide flexibility in terms of holding periods, allowing investors to adjust their investment strategy more frequently.
The Cons of Investing in Class C Shares
- Higher expenses: Class C shares generally come with higher ongoing expenses, including management fees and 12b-1 fees. These expenses can eat into your investment returns over time.
- Contingent Deferred Sales Charge (CDSC): Class C shares may impose a CDSC if you decide to sell your shares within a specified time frame. This charge can significantly reduce your investment returns if you need to liquidate your investment early.
- Potential for lower long-term returns: Due to higher expenses, Class C shares may result in lower long-term returns compared to other share classes, such as Class A shares. If you plan to hold your investment for an extended period, this should be taken into consideration.
It’s crucial to carefully evaluate your investment goals, risk tolerance, and time horizon before deciding to invest in Class C shares or any other investment option. If you prefer higher liquidity, a shorter investment horizon, and are willing to accept potentially lower long-term returns, Class C shares may be a suitable option for you.
Class C shares offer advantages such as liquidity, lower upfront costs, and the potential for capital gains. However, they also come with higher expenses and the possibility of a CDSC. Before investing, consider your investment objectives and weigh the pros and cons of Class C shares against other share classes available in the market. By doing so, you can make an informed decision and align your investment strategy with your financial goals.