Breakpoint

Breakpoint

For mutual funds, the point at which the amount invested reduces the sales charge is called the "breakpoint." Each mutual fund may have several breakpoints; the larger the investment, the greater the discount. Note that the actual reduction in the sales charge is known as the "breakpoint discount". Also, the term "breakpointing" is sometimes used to refer to the offering of breakpoint discounts. The practice of soliciting mutual fund purchases just below the breakpoint (to earn more commissions) is considered unethical and in violation of NASD rules. See: right of accumulation.

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breakpoint

The cumulative level of purchases of shares in a mutual fund that is required before an individual purchaser can qualify for a reduced sales commission. Compare letter of intent. See also right of accumulation.

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Breakpoint

In loaded mutual funds, a dollar amount an investor must buy into the fund in order to be eligible for a reduced load or sales fee. For example, if the breakpoint for a certain mutual fund is $50,000, and investments beyond that amount will halve the load, it becomes advantageous for an investor to invest $50,000 instead of, say, $45,000, because this will entitle him/her to half the load for the entire investment, and not just for the amount invested past $50,000. Mutual funds that allow investors to buy at just below the breakpoint may run afoul of Financial Industry Regulatory Authority regulations. An investment need not come all at once to pass the breakpoint; an investor putting two tranches of $25,000 into the above mutual fund will usually find his excess load refunded. See also: Right of accumulation.

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Breakpoint. A breakpoint is the level at which your account balance in a mutual fund company or the size of a new investment in the company's funds qualifies you to pay a reduced sales charge.

Fund companies that charge a percentage of the amount you invest as a front-end load, or sales charge, may offer this cost saving. They are not required to do so, but if they do use breakpoints, they must ensure that all clients who qualify get the discount.

In most cases, the first breakpoint is $25,000, with further reductions for each additional $25,000 or $50,000 purchase. For example, if the standard load were 5.5%, it might drop to 5.25% at $25,000, to 5% at $50,000, and perhaps to as low as 2.5% with an investment of $250,000.

In calculating breakpoints, some fund companies will combine the value of all of your investments in the mutual funds they offer. Other companies count the investments of all the members of your household or give you credit for purchases you intend to make in the future.

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Breakpoint

What Does Breakpoint Mean?

For a load mutual fund, the dollar amount for the purchase of the fund's shares that qualifies the investor for a reduced sales charge (load). The purchase may be made in a lump sum or by staggering payments within a prescribed period. The latter form of investment purchase in a fund must be documented by a letter of intent.

Investopedia explains Breakpoint

As an example, suppose an investor plans to invest $95,000 in a front-end load mutual fund and faces a sales charge of 6.25%, or $6,125. If a breakpoint of $100,000 exists with a lower sales charge of 5.5%, the investor should be advised to invest an additional $5,000. If the investor can add another $5,000 to the investment, he or she will benefit from a lower breakpoint sales charge of $5,500, for a savings of $625 on this transaction. Mutual funds are required to give a description of these breakpoints and the eligibility requirements in the fund prospectus. By reaching or surpassing a breakpoint, an investor will face a lower sales charge and save money. Any purchase of fund shares that occurs just below a breakpoint is considered unethical and in violation of NASD rules.

Related Terms:
• Broker-Dealer
• Expense Ratio
• Front-End Load
• Mutual Fund
• Total Return