Why do mutual funds have different classes of shares?

Question

What will be an ideal response?

Answer 1

One reason for mutual funds having different classes of shares involves offering investors a preference between when expensesare preferred to be paid (such as paying less now versus paying more at later). To achieve this outcome of offering investors choices, a mutual fund may have a multi-class structure that gives investors an option to select a fee and expense structure that theyprefer. For example, a multi-class structure could have Class A shares, Class B shares, and Class C shares. Longer term investors will prefer Class A as this will be a less expensive alternative for them. Whereas the costs with Class A may be greater upfront, over time their other fees are lower and will more than make up for any greater initial costs. Each investor has to examine the fee choices along with an investment horizon to determine which class would have cheaper expenses given a particular time frame.