Mutual funds traditionally required investors who buy through a broker to pay an up-front sales commission; these funds are known in industry jargon as A shares.
But the prospect of paying commissions deters some investors. In response, the fund industry in recent years has come up with new ways to compensate brokers.
Funds with back-end sales fees, which enable customers to defer payment of commissions until they redeem shares, are catching up with front-end loads in popularity. They are dubbed B shares.
Level-load funds, which enable investors to spread out commissions over several years, are also gaining a following. They are known as C shares.
Funds that carry no brokerage fee are growing in part because of the boom in tax-deferred retirement plans. Fund companies that offer these institutional shares-known as Y shares-are willing to waive commissions because they stand to get substantial income from investment management fees.