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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.
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. |