Breakpoint Sale

Breakpoint Sale

The sale of a mutual fund at a set dollar amount that allows for the fundholder to move into a lower sales charge bracket. If an investor is unable at the time of investment to come up with the funds necessary to qualify for the lower fee they can sign a letter of intent stating they will reach the total amount, or breakpoint, in a set time period.

Any sales that occur just below a breakpoint are considered unethical and in violation of NASD rules.

Notes:

An example of a breakpoint sale would be where an investor plans to invest $95,000 in a front-load mutual fund and they face a charge of 6.25% or $6,125. If they are properly advised they will be told that if they add $5,000 for a total investment of $100,000, they'll qualify for a lower sales charge of 5.5%, or $5,500. This means they will essentially have $5,625 more invested than the initial purchase plan due to the savings in sales charges.

See also: Back-End Load, Breakpoint, Front-End Load, Letter of Intent, Mutual Fund, No Load Fund

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Breakpoint Sale

For mutual funds, this refers to the practice of soliciting mutual fund purchases just below the breakpoint (to earn more commissions). The practice is considered unethical and in violation of NASD rules.