What is a 'Breakpoint Sale'

A breakpoint sale is the sale of a mutual fund at a set dollar amount that allows the fundholder to move into a lower sales charge bracket. If, at the time of investment, an investor is unable to provide the funds needed to qualify for the lower fee, he can sign a letter of intent promising to reach the total amount, or breakpoint, in a set time period.

BREAKING DOWN 'Breakpoint Sale'

Breakpoint sales provide fee discounts to investors based on investment breakpoint levels determined by the fund company. Fund companies are responsible for structuring sales loads and breakpoint schedules. These fees and breakpoints are detailed in a fund’s prospectus and agreed upon by intermediaries.

Sales Loads and Breakpoint Schedules

Open-end mutual funds transacted through a full-service broker are required to pay sales loads to intermediaries for the service of identifying, recommending and transacting the fund. Sales loads on mutual funds can be front-end, back-end or level. Breakpoint schedules are levels set by the mutual fund that allow an investor to receive a sales load discount. Discounts from breakpoints are typically applied to funds with front-end sales load, but they could be applicable to all shares of a fund.

Breakpoint discounts often begin at $25,000, with discounts increasing incrementally to a maximum level. Beyond the mutual fund’s maximum breakpoint level, investors will no longer incur sales load charges. Financial advisors are required to provide full disclosure of breakpoint schedules and ensure that investors are aware when a minimal additional investment could qualify them for a higher discount.

Below is a sample breakpoint schedule provided by the Financial Industry Regulatory Authority:

Investment and Sales Charge

Less than $25,000: 5.00%

At least $25,000, but less than $50,000: 4.25%

At least $50,000, but less than $100,000: 3.75%

At least $100,000, but less than $250,000: 3.25%

At least $250,000, but less than $500,000: 2.75%

At least $500,000, but less than $1 million: 2.00%

$1 million or more: No sales charge

Following the above breakpoint schedule, an investor planning to invest an initial $40,000 in a front-end load fund would receive a discount and face a charge of 4.25%, or $1,700. If the investor is properly advised she will be told that adding $10,000 for a total investment of $50,000 would qualify the sale for a lower sales charge of 3.75%.

Accumulation Privileges

Most mutual funds will include accumulation privileges in their sales load and breakpoint schedules. Accumulation privileges allow an investor’s sales charge from a breakpoint schedule to be based on their total investment in the fund. For example if the investor from above invests another $15,000 six months later, she would qualify for the same sales charge of 3.75% on the $15,000 transaction.

Letters of Intent

Mutual fund companies with sales loads and breakpoint schedules typically also include provisions for a letter of intent. This documentation allows the investor to pledge a specified investment in the fund and receive the sales load fee for their comprehensive investment.

RELATED TERMS
  1. Breakpoint

    Breakpoint, for load mutual funds, is the dollar amount for the ...
  2. Rights of Accumulation - ROA

    Rights of accumulation are rights that allow a shareholder to ...
  3. Sales Charge

    A sales charge is a commission paid by an investor on his or ...
  4. Foregone Earnings

    Foregone earnings are the difference between earnings actually ...
  5. Percentage Lease

    A percentage lease is a lease where the tenant pays a base rent ...
  6. No-Load Fund

    A mutual fund in which shares are sold without a commission or ...
Related Articles
  1. Investing

    Lower Your Fees With Mutual Fund Breakpoints

    The lower the sales charge you pay, the greater your returns. Find out how to cash in. Use breakpoints.
  2. Investing

    4 Dishonest Broker Tactics and How to Avoid Them

    Protecting yourself from dishonest broker practices means knowing how to spot them.
  3. Financial Advisor

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  4. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  5. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
  6. Investing

    The Lowdown on No-Load Mutual Funds

    No-load mutual funds let you cut out the middleman—and the fees.
  7. Retirement

    7 Reasons to Yank a Mutual Fund from Your 401(k)

    Not all mutual funds are created equal. Here are some practical tips for recognizing – and ditching– low-value mutual funds that might be in your 401(k).
  8. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
  9. Investing

    How to Pick a Good Mutual Fund

    Learn the basics of investing in mutual funds, including how to establish your goals and risk tolerance and choose the type of fund that's best suited to meet your needs.
  10. Investing

    Consider These Fees When Evaluating Mutual Funds

    The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged.
RELATED FAQS
  1. How does a no-load fund make money?

    Find out how no-load mutual funds make money, what the purpose of a sales charge, or load, is and why some funds have higher ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center