MUTUAL FUND BREAKPOINTS  

Depending on share class, mutual funds often offer discounts on front-end sales charges for larger investments. The investment levels at which the discounts become available are called “breakpoints.” For example, a mutual fund might charge a front-end sales charge of 5.75% for investments less than $50,000, but reduce the sales charge to 4.50% when the total investment is between $50,000 and $99,999. There are further reductions for larger investments.

How Breakpoints Work Within a Mutual Fund Family  

When your initial mutual fund investment exceeds a specified amount you may qualify for a volume discount called a breakpoint. For example, an investment of $49,500 in mutual fund shares may incur a front-end sales charge of 5.75% or $2,846.25, while an investment of $50,000 may incur a sales charge of 4.50% or $2,250.00. In this example, by choosing to invest $500 more, and realizing a lower sales charge, $596.25 more would be invested in the fund. Typically there are several breakpoints. As investments reach subsequent breakpoint thresholds, the sales charge will be further reduced.

Members of the same household (as defined by each mutual fund prospectus) may be permitted to aggregate their holdings with those of other family members to qualify for a breakpoint.

Mutual fund prospectuses contain tables that illustrate the available breakpoint discounts and the investment levels. Additionally, “Rights of Accumulation” (ROA) and “Letters of Intent” (LOI) may allow investors to qualify for breakpoint discounts.

Rights of Accumulation

“Rights of Accumulation” (ROA) discounts apply to mutual fund purchases when new investments are added to the value of prior investments. The combination of these values can be used to reach a breakpoint. For example, a $10,000 investment can be added to an existing $40,000 investment so that when these amounts are combined, a $50,000 breakpoint is reached. Mutual funds may apply ROA’s based on the current value of prior investments. For example a $10,000 investment today combined with a prior investment of $20,000, which now may have a value of $40,000, may qualify for the $50,000 breakpoint. ROA’s are not retroactive to the original investment.

Letter of Intent

A “Letter of Intent” (LOI) is a statement you sign that expresses your intent to invest an amount exceeding a given breakpoint within a period of time specified by the fund. For example, if an investor plans to purchase $50,000 worth of Class A shares over a period of 13 months where each individual purchase on its own would not qualify for a breakpoint discount, the investor could sign a Letter of Intent at the time of the first purchase and receive the breakpoint discount associated with $50,000 investments on the first and all subsequent purchases.

If you fail to invest the amount stated in your LOI over the prescribed timeframe, the fund will retroactively collect the higher sales charge.

Click below for SEC link on breakpoints

http://www.sec.gov/answers/breakpt.htm