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Breakpoint

The sum of money required to buy shares in a load mutual fund that entitles the investor to a lower sales charge. Breakpoints give investors a discount in exchange for making bigger bets. Either a lump sum payment or spaced installments over a predetermined time period may be used to fund the purchase. A letter of intent must be used to support the latter type of investment acquisition in a fund (LOI).



Breakpoint discounts reduce the front-end sales load for Class A mutual fund investors. Discount depends on amount invested in a fund family. A mutual fund may impose a 5.75 percent front-end load for share purchases under $50,000, 4.50 percent for transactions between $50,000 and $99,999, and reduce or eliminate the load for greater assets.

Investors can reach breakpoints with a single purchase of Class A mutual fund shares, a Letter of Intent (LOI), or rights of accumulation (ROA). An LOI allows investors to earn breakpoint discounts for committing to acquire a certain number of shares over time, usually 13 months. An investor can get the $25,000 breakpoint discount on each $5,000 purchase by signing a LOI to acquire $25,000 in fund shares over a year in $5,000 increments.

An ROA allows an investor to combine his fund shares with those of spouses and children to reach breakpoint discount levels. Investors may be able to combine holdings in different accounts at the same broker-dealer, at different broker-dealers, or in different types of accounts, such as 401(k)s and 529 plans, to reach a breakpoint discount threshold.

In 2002, NASD found difficulties in mutual fund transactions, when eligible consumers didn't always get breakpoints. NASD, SIA, and ICI led a task force on breakpoints in 2003 at the SEC's request to recommend industry-wide measures to address errors and lost chances to provide breakpoint discounts.

FINRA has taken efforts to assure investors who didn't receive proper discounts can get a refund and will receive any discounts to which they are entitled in the future.

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