A breakpoint is the level or amount of investment purchases that are necessary for the investors to earn a discounted sales fee. They are related to mutual funds. It depends on the structure of the mutual fund program, sometimes it is possible to achieve a breakpoint by a single large purchase, or other times a series of smaller purchases may result in reaching the purchase level cumulatively.
Front-end load
It is a part of the basic structure of most mutual fund programs that there is a charge when an investor opt to purchase shares. Usually this sales fee or charge is based on a percentage of the total purchase price that are associated with the transaction. It is usually known as a front-end load.
When does a breakpoint is reached?
When a certain dollar level is reached by a single purchase or an aggregate total of purchases within a given time frame, then it might be dictated by the terms of the fund that a reduction in the percentage that is charged as the sales fee is received by the investor. That is the particular dollar level that is considered to be the breakpoint.
Benefits of Knowing the Breakpoint
It is beneficial for the investors to know the breakpoint that is associated with a given investment. Depending on the percentage that is normally charged as the sales fee, it might become possible for the investors to invest a slight increase in the purchase of shares and earn a discount that will cover a credible amount of that increase.
This will ultimately results in the acquisition of additional shares for investor, while still realizing a decreased overall cost, once the reduced sales fee is averaged into the unit cost for every single share purchased.
How to have more than one Breakpoints?
It is common that there are more than one breakpoint that can be realized by an investor. Along with the initial breakpoint, by purchasing additional shares within a designated period of time the possibility of achieve a higher percentage discount on the sales charge increases. As the amount of purchase increases, so does the discount percentage associated with the sales fee. Over time, the savings to the investor can be significant.
Breakpoint – Use to attract Investors
The breakpoint is used as an added incentive for attracting investors to purchase shares, as well as for maximizing their involvement in the mutual fund by purchasing additional shares, rather than to invest elsewhere. Depending on the performance of the shares associated with the fund, it can be a sound financial investment to opt taking advantage of the breakpoint and invest more revenue in one block of mutual funds.
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