If you’re like many investors, you like the diversification and perhaps the active management that many mutual funds offer. And there are lots of resources available for you to identify, compare, and choose funds in which to invest. Let’s say you’ve decided to put some of your money into the Pimco Total Return Bond fund. Fair enough. But did you know there are five different classes of the very same fund? There’s PTTAX, PTTBX, PTTCX, PTTDX, and PTTRX? Why are there so many choices and which is the right choice for you?

The short answer is that each different fund class has a different fee structure designed for a particular market segment. Each share class includes some combination of three types of expenses. First, there are the annual expenses (called expense ratios) which every mutual fund charges. For some funds these charges are less than 0.10% of your investment, while for others they can eat up as much as 3 – 4% of your assets each year. Funds utilizing more active management and/or those focusing on geographies or sectors – small companies in emerging markets, for example, where there is less available information – will typically have higher expenses, reflecting the additional research required. The return to the investor from the fund is equal to the fund’s return less the annual expenses.

In addition to the expenses above, there may be an up-front load, or sales charge, that some mutual fund classes include. There may also be a back-end load, or redemption charge. And, just to add to the complexity, the size of these loads can also vary from one share class to another. While the impact of these different combinations of expenses on your returns will vary based on the length of time you hold the fund, knowing the basic differences between these share classes can help you make better choices even without knowing the future. Let’s compare some of the more common share classes:

‘A’ shares (also known as investor shares) typically carry high front-end loads, no back-end loads, and relatively low annual expenses. For example, Pimco Total Return Bond fund ‘A’ shares (PTTAX) carry a 3.75% load and an expense ratio of 0.85%. That means that if you invest $10,000, you’ll pay $375 in sales charges right off the bat, leaving $9,625 to be invested in the fund. And each year the investment company will take out an additional 0.90%. Unless you plan to keep the investment for a very long time, the large up-front fee will significantly reduce your returns (relative to the fund’s returns). Class ‘A’ shares are typically recommended by commission-based brokers since the up-front fee represents their fee for selling you that mutual fund. If you’re buying shares on your own, you should avoid ‘A’ shares.

‘B’ shares typically have no front-end loads, higher expense ratios than ‘A’ shares, and back-end redemption fees, which sometimes decline the longer you hold the shares before selling them. ‘B’ shares aren’t usually very economical either, especially for long-term investors, because of their high expense ratios, as well as their back-end sales charges. For example, the Pimco Total Return Bond fund ‘B’ shares (PTTBX) have a 1.60% expense ratio, nearly twice that of the ‘A’ class shares.

‘C’ shares are commonly known as “level-load” shares. They generally have no loads on either the front or back end, or if they do have a redemption fee, it’s usually much smaller and/or scales down much faster than the back-end loads of ‘B’ shares. But like ‘B’ shares, ‘C’ shares usually have high year-to-year expenses as compared to ‘A’ shares, again making them a bad bet for long-term investors. The ‘C’ shares of the Pimco bond fund above (PTTCX), for example, have the same high expense ratio as the ‘B’ shares. Some funds utilize ‘N’ shares, which are slightly cheaper versions of ‘C’ shares, but which still carry higher expense ratios than ‘A’ shares.

‘D’ shares are typically sold through mutual fund supermarkets such as Schwab or Fidelity. There are no loads (either front-end or back-end) and the expenses are usually more reasonable. The expense ratio for the Pimco Total Return fund’s ‘D’ shares (PTTDX), for example, is only 0.75%. But there might be a transaction fee you have to pay to the broker, which varies depending on the level of assets you are maintaining with them. Regardless, these are usually the best class of shares to purchase if you are a retail investor.

‘R’, ‘S’, and ‘Z’ shares round out the list, and are generally not available to retail investors. ‘R’ refers to shares that are explicitly created for retirement plans. The fees that these funds charge range widely. Some are ultra-low-cost, while others bundle in the record keeping and other administrative costs associated with running the plan. ‘S’ and ‘Z’ are usually share classes that have closed to new investors; if you want to buy into one of these funds for the first time, you’ll have to go through a broker and initially opt for the A, B, or C share class.

The best shares to own are the ‘I’ or ‘Y’ institutional shares – no loads and the lowest expenses in the mutual fund world. Our Pimco bond fund’s ‘I’ shares (PTTRX) carry an expense ratio of only 0.46%, for example. But ‘I’ shares require a minimum investment that is typically out of the range of most investors. For the Pimco fund it’s a cool $1 million! There are, however, two ways you can get access to such fund classes without being Bill Gates. One way is to utilize a financial planner who is also an investment advisor. Many advisors can get you institutional fund shares based on their aggregate investment (across all clients) in the fund or the fund family. Many advisors also have access to load-waived ‘A’ shares of many funds, which have the same low expense ratios as ‘A’ shares but eliminate the front-end loads. Load-waived ‘A’ shares are not always as good as ‘I’ shares, but certainly better than most of the others. Another way to invest in institutional shares might be through a retirement plan if you work for a large company. Unfortunately, many such plans utilize custom funds whose expenses can be opaque and, in some cases, even more expensive than retail shares.

If you think these cost differences are minor, think again! Over time they can have a big effect on your returns. Suppose the Pimco Total Return Fund returned an average of 8% per year over the last five years, not including these fees. If you had purchased $10,000 worth of PTTRX, after the five years you’d have ended up with $14,383. PTTAX, on the other hand, would have returned you only $13,594. That’s almost a 6% difference. And we’re talking about the very same fund!

To summarize, ‘I’ shares are the best, followed by load-waived ‘A’, ‘D’, and ‘N’ shares. Remember: there are many strategies you can follow for picking a good mutual fund. You can consider cost, or management strategy & expertise, or historical performance, or any number of other attributes. But once you’ve made your selection, paying attention (when the investment company offers multiple classes) to which share class to purchase is a simple way to further improve your portfolio returns.