3.1.3.1 Breakpoints
Mutual funds often reward customers for investing larger amounts in a fund or a family of funds. The reward is a discount on a front-end sales charge if they reach a certain dollar amount. The dollar amount is called a breakpoint.
Example: MegaFund charges a 5% sales charge on investments under $25,000 and 4.25% on investments at or above $25,000. The breakpoint in this case would be $25,000.
FINRA offers the following sample breakpoint schedule:
|
Sample Breakpoint Schedule |
|
|
Class A Shares (Front-end Sales Load) |
|
|
Investment Amount |
Sales Load |
|
Less than $25,000 |
5.0% |
|
$25,000 but less than $50,000 |
4.25% |
|
$50,000 but less than $100,000 |
3.75% |
|
$100,000 but less than $250,000 |
3.25% |
|
$250,000 but less than $500,000 |
2.75% |
|
$500,000 but less than $1 million |
2.0% |
|
$1 million or more |
0.0% |
As an investor continues to add money to a fund, the total value of his investment increases. Additionally, any increase in the fund’s NAV adds to the total value of his investment. When the value of his total investment reaches the next breakpoint, the investor is entitled to a lower sales load on the purchase of any additional shares. This is called a right of accumulation (ROA).
In some cases, an investor knows that she will be buying additional shares in the future. If an investor plans to reach a breakpoint within the next 13 months, she can write a letter of intent (LOI) to her broker. The letter of intent is a