Investment Companies - Breakpoints
A mutual fund company's scale of declining sales charges based on the amount invested is called the fund's breakpoint schedule. One of the two breakpoint schedules below must be used in order for a fund to charge the maximum 8.5% sales charge:
Sales Charge Percentage
$25,001 or more
Sales Charge Percentage
$25,001 or more
Sales charge as a % of offering price
Less than $25,000
$25,000 but less than $50,000
$50,000 but less than $100,000
$100,000 but less than $250,000
$250,000 but less than $500,000
$500,000 but less than $750,000
$750,000 but less than $1 million
$1 million or more and certain other investments
An investor might qualify for these breakpoints in several ways. For example, the investor might add a larger lump sum to the purchase to meet a breakpoint level, thereby reducing the sales charge by as much as 1% or more. Note that for the purposes of breakpoint qualification, married couples, parents and their minor children, and corporations count as single investors.
Two other incentives offered by mutual fund companies to allow investors to continue investing and qualifying for breakpoints include letters of intent and rights of accumulation.
- Letters of Intent (LOI): You will often come across clients who may not have enough money at present to qualify for a fund's breakpoint schedule, but who will have access to more money to invest in the future. In order to decrease the sales charge on the present fund purchase, the investor can agree to invest the additional funds necessary to reach the breakpoint within 13 months by signing a letter of intent.
The customer must complete the additional investment to qualify for the reduced sales charge. The fund family will hold the extra shares in escrow, and the investor must deposit the additional money to complete the LOI. If the customer has not completed the investment amount within the 13 months, he or she can make up the difference in sales charges by either redeeming escrowed shares or paying by check. Appreciation and reinvested dividends do not count toward the LOI.
- Rights of Accumulation (ROA): Rights of accumulation allow the investor to qualify for a reduced sales charge on a new purchase by using prior share appreciation to qualify for breakpoints without any time limits. The mutual fund company will usually allow the investor to take into account the current value of existing holdings in any class of shares, including funds held in other types of products, such as variable annuities and variable life products.
Exchanges within Fund Families
Exchange privileges within a mutual fund family allow the investor to convert holdings in one fund for an equal investment amount in another fund within the same family without incurring a sales charge. Not all fund families allow this privilege, and some limit exchanges according to the total fund value of the shareholder's current holdings or the number of exchanges per year. This information is contained in the mutual fund prospectus.
When an investor decides to exchange funds within the same share class, there are no sales charges for the service. However, exchanges have the same tax consequences as ordinary sales and purchases. That is, any gains will be taxable and any losses may be used against other gains.
EconomicsIs a bear market an indication that a recession is on the horizon?
EconomicsFind out what can still be learned from the late economist Milton Friedman, a Nobel prize winner and champion of free market economics.
RetirementThe recent U.S. Supreme Court decision on marriage equality affords same-sex couples access to Social Security benefits. Here's how it works.
Personal FinanceIdentify theft thrives in part because people must give their Social Security number for so many types of interactions. How can you protect yourself?
Stock AnalysisWatch for strong technical indicators and other positive information when considering the purchase of any stock trading in the $1 range.
Mutual Funds & ETFsDiscover the four best mutual funds administered and managed by T. Rowe Price that specialize in investing in stocks of growth companies.
Mutual Funds & ETFsRead analyses of the top three T. Rowe Price value funds open to new investors, and learn about their investment objectives and historical performances.
Tax StrategyWith a CRUT, art collectors can avoid capital gains taxes on the sale of art– while also leaving their favorite charity a legacy.
Active Trading FundamentalsDiscover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
EconomicsPolicymakers in Europe go for the unconventional: negative interest. What could happen?
Rescuing a financial institution that is on the brink of failure ...
A tax on businesses and industries that produce carbon dioxide ...
A resource of economic value that cannot be readily replaced ...
Green economic theories encompass a wide range of ideas all dealing ...
The performance of a publicly traded company in non-financial ...
A mutual fund or other investment vehicle that will only invest ...
A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
"Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>