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.
Financial AdvisorsObtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
ProfessionalsObtain information, both general and comparative, about the best available financial modeling courses for individuals pursuing a career in investment banking.
Stock AnalysisLooks at Twitter's plans for 2016 under CEO Jack Dorsey, who has returned to lead the company he founded seven years after he was replaced.
Investing BasicsLearn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
EntrepreneurshipLearn who the richest of the rich are in a city known for creating some of the world's wealthiest people, and read how they amassed their vast fortunes.
Credit & LoansLearn where you can find the best auto loan calculators online that include sales tax, and understand the different features these calculators offer.
TaxesYour volunteer ventures could earn you some welcome tax deductions, along with the satisfaction of helping others.
RetirementA traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
RetirementFully funding someone’s life for three decades without work is tricky. The result is retirement has become, for many, a 30-year adventure.
RetirementThough dreamed of by many, for most, early retirement is not a viable option. Instead, consider a midlife career change.
Brand identity is the way a business wants consumers to perceive ...
A situation in which the supply and demand for a good or service ...
Earnings Stripping is a commonly-used tactic by multinationals ...
Skinny down distribution is corporate practice of slimming down ...
Money borrowed to finance education or school related expenses. ...
A temporary recovery from a prolonged decline or bear market, ...
Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
Israel is considered a developed country, although it has substantial poverty and large income gaps. The International Monetary ... Read Full Answer >>
Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
The Wall Street Journal is controlled by Rupert Murdoch via Dow Jones Publications, which in turn is owned by Murdoch's News ... Read Full Answer >>
Spain is a developed country. Nearly all organizations that analyze development status classify it as such. Spain has a strong ... Read Full Answer >>