What is Breakpoint?
In the mutual fund world, a breakpoint is the size of an that qualifies the investor for a lower .
How Does Breakpoint Work?
Let's assume you are interested in making a $10,000 load goes down to 3%.in the Company XYZ , which has a 4% (a fee for buying the ). If you invest at least $15,000, however, the
Thus, of the $10,000 investment, $400 ($10,000 x .04) is paid to the company and $9,600 is actually invested in the fund as a result of less than $15,000. Ideally, the from the investment should more than make up for the load. In this example, the front-end loaded fund must return 14.6% in one year to reach $11,000 in value, but the must only return 10% to do so. The fund would not have to earn as high a return if the investor invests over the breakpoint.
Somemany have more than one breakpoint. In some cases, an investor can sign a with the investment company, promising to invest a certain amount over time in order to qualify for the reduced load now. Additionally, some provide for a right of accumulation, which a lower load when the investment reaches a certain level over a certain time period.
Why Does Breakpoint Matter?
Loads discourage investors from frequently trading their, an activity that requires to have considerable amounts of on hand rather than invested. Generally, however, a load is considered payment for the 's expertise in selecting the right for the investor.
It is important to understand that a load is only one of several types of fees that may be charged. Thus, when comparing investment, the investor's risk tolerance, and the investor's time horizon should always be considered when evaluating any investment., investors should be careful to evaluate all fees associated with an , not just the size of the load. Additionally, the nature of the
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