Be sure to also read the 7 Questions to Ask When Buying a Mutual Fund

Investors do have the opportunity to reduce their sales-loads based on the amount of the initial investment they are planning to make. Class A shares come with a laddered fee schedule that allows investors making a large initial investment to reduce or even avoid that initial sales load. Additionally, many mutual fund companies allow investors to sign a letter of intent, which basically says they will invest X dollars by this date. By signing one of these, many fund companies will move the investor into a lower load bracket and reduce the sales fee.

Class A shares also have the benefit of having overall lower operating expenses, as well as lower 12b-1 fees. This is an ongoing charge originally designed to help pay for sales advertising materials given to advisors. This makes Class A shares perfect for those investors looking towards the long term.

The disadvantages for Class A shares are that smaller investors or those who wish to dollar-cost average into a fund often end up losing out due to the sales load.

This sounds like an awesome deal and certainly makes the case for owning C shares over A shares, but it’s not that simple.

C shares also come with much higher expense ratios. Dubbed a “level load,” this extra cost is often a full percentage point higher than the A share equivalent. Additionally, those pesky 12b-1 fees are also much higher. The combination of these fees will typically end up costing investors much more over the long haul than paying the initial front-end load with A shares. This means that C shares should be used for generally shorter term investment timelines – say, between 1 and 3 years. This way you gain the most from not having to pay sales loads, but the higher expenses won’t totally kill your investment gains.

Class D are “no-load” shares of mutual funds that often have sales loads (A & C shares). Investors choosing this option gain access to the fund without having to pay the initial fee or fees when they sell. Additionally, Class D shares often have lower expense ratios than their A and C twins, as well as no 12b-1 fees. The kicker for D shares is that they aren’t available to everyone; only certain retirement plans and brokerage firms will offer them. However, if you do have the opportunity to buy the D shares of a fund you like, do it. You’ll come out on top in the end.

Also found in retirement plans are class R shares. Like D shares, class R shares do not charge sales loads, but do come with 12b-1 fees. That does sop up some of the returns of R shares. However, when factoring an employer’s match in a 401(K), the extra fee is almost negligible.

See also How to Read Your Annual Mutual Fund Report

Do you have a lot of money to invest? Like $1 million or more? Then Institutional, or I, shares are for you. Individuals planning on making a large investment can take advantage of the lower fees and zero sales loads that pension funds, endowments and other institutional investors are able to use. I shares are often the absolute cheapest way to go when it comes to buying a mutual fund. What’s more is that many mutual fund companies will convert other share classes into I shares when an investor’s balance hits the required threshold.