Maximize Savings: Understanding Breakpoint Fees in Mutual Funds

Mutual funds have breakpoint lines where lower sales fees are charged. For example, a fund could charge a 6.5 percent fee for investments under $50,000 and a 5.75 percent fee for investments over $50,000. If you are considering purchasing $47,000 worth of shares in the fund, you might be be better off purchasing the full $50,000.

Affect of Sales Fees

In the above example, you would be charged a sales fee of $3,055 on the transaction if you purchased $47,000 worth of shares. You would only actually have $43,945 invested at the end of the transaction. If you purchased the full $50,0000, you would be charged $2,875. This means your investment would be $47,125. For the extra $3,000 you invested, you actually received $3,180 more in shares in the fund.

FINRA Rules

Sales that occur just below the breakpoint, such as a sale of $49,900 when the breakpoint is $50,000, are considered unethical and violated FINRA rules. The mutual fund could be accused of not informing the investor that a simple $100 more could have saved them thousands in sales fees. Always know the breakpoints of your fund so you can do the math and determine the best investment, avoiding any purchases that could be made cheaper with just a few thousand more dollars.