Breakpoints
Municipal fund securities often reward customers for investing larger amounts in a fund or a family of funds. The reward is a discount on a front-end sales charge if they reach a certain dollar amount. The dollar amount is called a breakpoint. Breakpoints are typically offered on A shares of broker-sold 529 plans or LGIPs. Brokers often allow customers to include amounts from their other accounts when figuring a breakpoint.
Example: MegaFund charges a 5% sales charge on investments under $25,000 and 4.25% on investments at or above $25,000. The breakpoint in this case would be $25,000.
FINRA offers the following sample breakpoint schedule:
|
Sample Breakpoint Schedule |
|
|
Class A Shares (Front-End Sales Load) |
|
|
Investment Amount |
Sales Load |
|
Less than $25,000 |
5.0% |
|
$25,000 but less than $50,000 |
4.25% |
|
$50,000 but less than $100,000 |
3.75% |
|
$100,000 but less than $250,000 |
3.25% |
|
$250,000 but less than $500,000 |
2.75% |
|
$500,000 but less than $1 million |
2.0% |
|
$1 million or more |
0.0% |
As an investor continues to add money to a fund, the value of the investor’s contribution to the fund increases. If this value reaches the next breakpoint, the investor is entitled to the lower sales load on the purchase of any additional shares. This is called a right of accumulation (ROA).
In some cases, an investor knows she will be buying additional shares in the future. If an investor plans to reach a breakpoint within the next 13 mo