DEFINITION of 'Breakpoint'

For load mutual funds, the dollar amount for the purchase of the fund's shares that qualifies the investor for a reduced sales charge (load). The purchase may either be made in a lump sum or by staggering payments within a prescribed period of time. The latter form of investment purchase in a fund must be documented by a letter of intent.

BREAKING DOWN 'Breakpoint'

For example, suppose that an investor plans to invest $95,000 in a front-end load mutual fund and faces a sales charge of 6.25%, or $6,125. If a breakpoint of $100,000 exists with a lower sales charge of 5.5%, the investor should be advised to invest an additional $5,000. If the investor can add another $5,000 to the investment, he or she would benefit from a lower breakpoint sales charge of $5,500, or a savings of $625 on this transaction.

Mutual funds are required to give a description of these breakpoints and the eligibility requirements in the fund prospectus. By reaching or surpassing a breakpoint, an investor will face a lower sales charge and save money. Any investor purchase of fund shares that occurs just below a breakpoint is considered unethical and in violation of NASD rules.

  1. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. ...
  2. No-Load Fund

    A mutual fund in which shares are sold without a commission or ...
  3. Breakpoint Sale

    The sale of a mutual fund at a set dollar amount that allows ...
  4. Front-End Load

    A commission or sales charge applied at the time of the initial ...
  5. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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