Breakpoint: What it is, How it Works, Examples

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Updated April 14, 2022

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What Is a Breakpoint?

A breakpoint is the dollar amount for the purchase of a load mutual fund's shares that qualifies the investor for a reduced 澳洲幸运5开奖号码历史查询:sales charge. Breakpoints offer investors a discount for making larger investments. The purchase may either be made in a lump sum or by staggering payments within a specified period of time. The latter form of investment purchase in a fund must be docum♓ented 🐲by a letter of intent (LOI).

Key Takeaways

A breakpoint is the dollar amount for the purchase of a load mutual fund's shares that qualifies the investor for a reduced sales charge.
Breakpoints allow for reduced fees for large purchases, which often benefit institutional investors.
Breakpoints are determined by the mutual fund and integrated within the fund distribution process.
Rights of accumulation (ROA) grant existing holders of mutual fund shares the potential for reduced loads (commissions) when purchasing more fund shares to reach breakpoints.

Understanding Breakpoints

Breakpoints are set at various levels to offer investors a discount on sales charges when they make larger investments. Breakpoints are determined by the mutual fund and integrated within the fund distribution process. They are typically offered for funds with a 澳洲幸运5开奖号码历史查询:front-end sales charge but may be aꦉvailable for other types of sales charges as well.

Mutual funds are required to give a description of breakpoints and eligibility requirements in their 澳洲幸运5开奖号码历史查询:prospectuses. By reaching or surpassing a breakpoint, an investor will face a lower sales charge and save money. ⛎;

Important

Breakpoint discounts often begin at $25,000.

The Financial Industry Regulatory Authority (FINRA)🌊🐲 provides the following of a breakpoint discount schedule:

Sample Breakpoint Schedule Class A Shares (Front-end Sales Load)
Investment	Sales Charge
Less than $25,000	5.0%
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	2.0%
$1 million or more	0.0%

Source: FINRA

Breakpoint Examples

Suppose that an investor plans to invest $100,000 in a front-end load mutual fund that carries a standard sales charge of 5.0%, or $5,000, and offers breakpoints. Based on the FINRA's breakpoint schedule, the investor’s front-end sales charge would be reduced to 3.25% or $3,250. In other words, this investor is able to save $1,750 on the transaction.

Tip

Investors should seek to have a clear understanding of a fund’s breakpoints and all qualifications to🐽 ensure they receive the greatest discount for 🥃which they are entitled.

Special Considerations

Mutual funds also allow investors to qualify for breakpoints through letters of intent (LOI) and 澳洲幸运5开奖号码历史查询:rights of accumulation (ROA).

Letter of Intent (LOI)

A 💛LOI, a formal document signed by the investor outlining their plans for investment in the fund, enables an investor to qualify for breakpoints by committing to an investment schedule over a period of time. Typically, a LOI will allow for future investments to be considered over the next 13 months.

For example, assume a new investor would like to make a $50,000 investment in a fund that follows the sample fee schedule outlined above and has a standard sales charge of 5.0%. If the investo♐r comꦉmits to making ten $5,000 payments over the next 13 months through a LOI, then the investor will pay a 3.75% sales charge on each investment.

Rights of Accumulation (ROA)

ROA permit investors to pay sales charges based on their total investment in the fund. Assume the new investor from the ไexample above would like to make additional investments after the LOI has expired. Any additional investments would incu✱r a sales charge of 3.75% until the investor reaches the next breakpoint of $100,000.

Basically, ROA grant holders of mutual fund shares the potential for reduced 澳洲幸运5开奖号码历史查询:commissions when purchasing more shares. In some cases, ROA may also extend beyond just the targeted 澳洲幸运5开奖号码历史查询:share class for investment.

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