American Funds Class C Shares Investment Guide

American Funds Class C Shares are a type of mutual fund that offers a flexible investment option for those looking to diversify their portfolio.

They have a lower upfront cost compared to Class A shares, with a 1% sales charge, but charge a higher ongoing fee of 1.00% annually.

This makes them a good option for investors who want to save on upfront costs but don't mind paying a bit more in the long run.

The fees for Class C shares are typically higher than those of Class A shares, which can eat into your returns over time.

C shares are a type of share class offered by American Funds, and they're often compared to A shares. C shares have higher annual expenses than A shares, but they don't have an upfront sales charge.

Investors in C shares pay an asset-based sales charge over time, which can be beneficial for those who don't want to pay a large upfront fee. However, this comes at the cost of higher annual expenses.

C shares have a unique feature: they convert to A shares after eight years, which can benefit long-term investors by reducing their annual expenses.

Here's a comparison of C shares and A shares:

It's worth noting that C shares have a 12b-1 fee, which includes an annual 1% fee to reimburse American Funds for dealer commissions paid to financial professionals in the first year of share ownership and to pay dealers for providing ongoing service to their clients who own C shares.

Investment limits for Class C and 529-C shares are set at $500,000.

Investors with aggregated American Funds accounts of $1 million or more are ineligible for Class C and 529-C investments and should purchase Class A or 529-A shares instead.

Investors in Class 529-C shares can invest until their balance reaches $500,000.

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Investors in Class 529-C shares are limited to investing up to $500,000 in their CollegeAmerica account, including any earnings.

Investments in a CollegeAmerica account cannot be made if the value of all 529 plans maintained by Virginia 529℠ (CollegeAmerica, Virginia 529 prePAID, Virginia 529 inVEST and CollegeWealth) for the same beneficiary is $500,000 or more.

Investors with aggregated American Funds accounts of $1 million or more are ineligible for Class C and 529-C investments, and should instead purchase Class A or 529-A shares.

Class A and 529-A shares become the better option for larger investments held over a longer period, as the sales charge declines as investments and/or account values increase.

Exchanges are generally allowed only within the same class of shares, due to the different expenses associated with each class.

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The deferred sales charge, also known as the CDSC, can be waived in certain situations, so it's worth understanding what qualifies.

The CDSC on Class C and 529-C shares may be waived for permitted exchanges of shares, except if shares acquired and then redeemed within the period during which a CDSC would apply to the initial shares purchased.

Tax-free returns of excess contributions to IRAs also qualify for a CDSC waiver.

Redemptions due to death or postpurchase disability of the investor can have the CDSC waived, but this generally excludes accounts registered in the names of trusts and other entities.

If you're a 529 share investor, redemptions due to a beneficiary's death, postpurchase disability, or receipt of a scholarship can also have the CDSC waived, to the extent of the scholarship award.

Redemptions due to the complete termination of a trust upon the death of the trustor/grantor or beneficiary, but only if such termination is specifically provided for in the trust document, can have the CDSC waived.

Required minimum distributions from retirement accounts and payments through systematic withdrawal plans, up to 12% of the account value each year combined, can also have the CDSC waived.

To have the CDSC waived, the investor or financial professional must inform American Funds that a transaction qualifies when the transaction is made.

Here's a summary of the situations that qualify for a CDSC waiver:

Class C shares have a unique conversion process that benefits long-term investors. After eight years, Class C shares automatically convert to Class A shares, reducing annual expenses and saving investors money in the long run.

In contrast, Class 529-C shares convert to Class 529-A shares after five years, also resulting in lower annual expenses. This conversion is a nontaxable event that can help investors save money over time.

Exchanges between share classes are generally not allowed, but there are some exceptions. For example, investors can exchange Class A shares in the American Funds U.S. Government Money Market Fund to Class C shares of most other funds. However, a sales charge may be applied if the shares were not already subject to a sales charge.

To avoid sales charges, it's essential to understand the different share classes and their associated expenses. Class A, C, F-1, and F-2 shares can be exchanged into the corresponding 529 share class without a sales charge.

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Here's a summary of the share conversion and exchange rules:

Class C and 529-C shares incur a sales charge when sold within 12 months, making them more expensive in the short term.

The sales charge on Class C shares is a drawback, but they do offer lower annual expenses compared to Class A and 529-A shares.

Class C shares convert to Class A shares in the month of the eight-year anniversary, which can ultimately benefit investors as they will incur lower 12b-1 expenses after the conversion.

Here's a comparison of the share classes:

Keep in mind that Class F-1, F-2, F-3, 529-F-1 and ABLE-F-2 shares have different pricing options and are available through various financial platforms.

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"with sales charge" refers to the upfront sales charge applied to investments in Class A, 529-A and ABLE-A shares when purchased.

The average annual total return "with sales charge" reflects the gain or loss made on an investment if the maximum 5.75% upfront sales charge was paid.

NAV, or "net asset value", is the value of a fund share.

You would receive the NAV for each share sold, which is calculated daily.

The average annual total return at NAV is the gain or loss made on an investment if you did not pay an upfront sales charge or a CDSC on the investment.

Reducing Sales Charges can be a complex process, but there are several ways to do it. Aggregating eligible accounts is one option, which can help reduce the sales charge on Class A, 529-A and ABLE-A investments.

Making concurrent purchases is another way to reduce the sales charge. This means buying multiple shares at the same time, which can help you take advantage of the rights of accumulation policy.

The rights of accumulation policy takes into account the current value of all existing share holdings in American Funds, as well as American Legacy accounts established on or before March 31, 2007, to determine your Class A, 529-A and ABLE-A sales charge.

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You can also add the value of American Funds shares you already own to reduce the sales charge. This is known as the rights of accumulation policy, which can be a big help.

To give you a better idea, here are some ways to reduce sales charges:

Keep in mind that direct investments into the money market fund are excluded from rights of accumulation.

It's worth noting that American Funds does not allow investments in Class C shares when Class A shares might be a more cost-effective option. This helps ensure you can take advantage of Class A share sales charge discounts.

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