What is a mutual fund breakpoint?

Question

I was talking with my financial adviser today and they mentioned mutual fund breakpoints. The most I could make of it was it was a discount on the mutual fund (either the maintenance fee or load). They said that normal breakpoints occur when you purchase 50, 100, and 200 thousand dollars worth of a fund. What are these breakpoints and what do they do for me?

Answer 1

For load mutual funds, breakpoint is the dollar amount for the purchase of the fund's shares that qualifies an investor for a lower sales charge. The larger the investment, the larger the discount. The purchase may either be made in a lump sum or by staggering payments within a specified period of time. Breakpoints are usually offered for funds with a front-end sales charge but may be available for other types of sales charges as well.

As outlined in Investopedia, a normal front-end fee would be 0.5% of your investment.

If you put up more than a certain amount, perhaps $100,000, then you would pay 0.4% or some such. You get a break on the fees charged. There may be multiple levels, as you mention.

The thought process on their part is likely two-fold. First is that it is still a sizable amount of money, even discounted.

Secondly and probably more importantly, investors with a lot of cash are generally more sophisticated. They are less likely to use mutual funds and may need the incentive of a lower fee to consider them for part of their investment mix.