- Some mutual funds have a sales charge or front-load associated with purchasing shares of the fund. The amount of the charge varies from fund to fund. However, most mutual funds provide a discount on the sales charge for larger purchases, often offering several different loads for larger and larger purchases. The dollar amount at which the fee drops is known as a breakpoint. The investor need not meet the amount necessary to get a breakpoint with every transaction. Rights of accumulation allow the investor to count other funds already invested with the company. If that amount still isn't sufficient, a letter of intent can be used to get the discount immediately.
- Most mutual fund companies allow investors to count any current holdings in the fund company's products when determining which breakpoint to apply to the new purchase. This is known as rights of accumulation. The amounts held by certain family members may also be counted toward determining at what level the purchase is made. For example, if the mutual fund company charges a 5.75 percent load for purchase amounts below $50,000 but only charges 5.0 percent for purchase amounts above $50,000, an investor who already owns $30,000 worth of the company's products need only purchase an additional $20,000 to receive the lower fee on the new purchase.
- Neither mutual fund companies nor brokers have any interest in seeing their customers save up to make larger investments in order to get a discount on the mutual fund fee. Therefore, mutual fund companies allow investors to state an intention to invest an additional amount within a stated time frame, typically 12 or 13 months. Based on this letter of intent, the mutual fund company will immediately give the investor the breakpoint and charge the lower sales load for the purchase.
- If the letter of intent is not fulfilled within the stated time frame, the mutual fund company will go back and re-price all previous purchases at the higher sales charge. This will include adjusting the account so that subsequent gains, dividends and interest are all changed to what they would have been based on the lower account balance.
- The Financial Industry Regulatory Authority (formerly the National Association of Securities Dealers) and the Securities and Exchange Commission have tools available for investors to use to calculate their mutual fund expenses. In addition, both organizations require all brokers and mutual fund companies to supply the appropriate breakpoint discount without any need for the customer to request it.
