Mutual Fund Breakpoints and ROA
To understand what Rights of Accumulation, or ROA are, it is necessary to first understand what a breakpoint is.
Some mutual funds are sold in a manner that generates a sales charge or commission. This charge is often referred to as a sales load. Mutual funds that charge such a fee are called loaded mutual funds to distinguish them from their no-load mutual fund cousins.
The typical stock mutual fund that charges a front-load levies a sales charge of around 5.75%. That means that of the initial investment, 5.75% is deducted to pay the load and the remaining funds are invested in the account. This large initial up-front payment can significantly lower an investor’s returns for a long period of time. However, most fund families offer a discounted load to investors who invest certain minimum amounts. While each fund family has its own particular schedule of breakpoints, a common breakpoint chart provides discounts for investors who invest a minimum of $50,000, those who invest at least $100,000, those who invest at least $250,000, and those who invest over $1 million. The last discount being a full discount, meaning the investment can be made without any sales load at all.
Many mutual fund companies further offer investment discount breakpoints based upon the total investment made with the whole fund family’s offerings. In other words, if Mutual Fund Company X offers two mutual funds, Mutual Fund A and Mutual Fund B, any combination of investment in both funds totally $100,000 or more would qualify the investor to pay the discounted load.
Furthermore, the investor need not invest $100,000 with every subsequent investment in order to qualify for the breakpoint. Instead, the current balance of the accounts are considered when determining which breakpoint level to use to calculate the mutual fund load charge. For example, an investor with $115,000 already invested would be entitled to the $100,000 level breakpoint discount regardless of how small the next investment was.
Combined, these features are called Rights of Accumulation.