Many investors, particularly those proficient on the internet, tend to lean toward no load companies when choosing mutual funds.

But if you do choose to use an investment advisor, you are asked to choose between A, B or C shares for each mutual fund that you buy. Knowing the best choice can be difficult.

A shares typically charge a large upfront load which can be as much as 5.75% which is discounted for large trades depending on the size. The management fee on these tend to be relatively small compared to B and C shares.

B shares charge no up front load but will charge a fee if you sell out of the fund family within a specified time. Typically the charge is 5% in the first year and declines each year until it disappears in the 6th year. To make up the foregone A share fee, B shares charge a larger management fee similar to C shares. After the fund company has charged that higher fee for enough time to recoup their fee, the fund company will usually convert these shares to A shares in order to reduce your cost.

C shares charge no up front load and will only charge you 1% if you sell in the first year. Of course, because they make less money, the management fee is typically double that of A shares.

So which class is the cheapest? The answer depends on how much you invest and how long you stay invested in the fund.

For small purchases of say $10,000 or less, the difference between B shares on A shares is minimal and truly comes down to weather or not you want to pay the fees up front.

Also, for small amounts, because you are not paying that large fee upfront, C shares usually cheaper in the first 7 years. After 7 years, the A shares will be cheaper.

However, because A shares are the only share class to offer a discount for large purchases, big investments of $250,000 or more in A shares may become cheaper than C shares in only a year or two.

Conventional wisdom is that A shares are right for more investors because mutual funds are considered long-term investments and over the long term, they are cheaper.

However, this wisdom puts no value on flexibility. For any financial plan, this is a mistake.

If you put money into an A share or a B share and pay the large up front fee or large back end fee, that money is gone forever. If you change your mind in the next few years, or have an emergency and have to pull your money out of the fund company for any reason, you made a mistake in not choosing C shares.

Most investors are not purchasing large amounts of mutual funds. For small purchases C shares are often the best choice because they offer the investor the most flexibility in making future changes.

Remember that despite best intensions, the average investor holds a mutual fund for 7 years. So for the average small investor, the cost is almost the same no matter which share you choose. So why give up the flexibility of C shares?

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