THE SHOPPING MALL OF INVESTMENTS
because part of it goes directly to the mutual fund family as the sales charge. However, when the investor redeems his shares, he or she will receive the NAV for the shares. There won’t be any surrender charge for taking out the money because the front-end load was already applied.
Class A shares are also subject to breakpoints. Mutual funds offer investors these breakpoints to encourage a higher investment. The fund family will set the breakpoints for each fund it offers, and when investors hit a breakpoint, they are subject to a lower front-end sales charge. For example, many fund families set their first breakpoint at $50,000. Let’s say you purchase $35,000 of the XYZ Growth Fund Class A. You then pay the highest sales load, which in this case let’s assume to be 5.75 percent. This means that of your $35,000, $2012.50 is the sales charge for purchasing the fund. However, let’s say you purchased $55,000. The associated breakpoint is at $50,000 at which point the sales charge becomes 4.75 percent. Your sales charge would be $2612.50. Without the breakpoint system, the sales load of 5.75 percent on $55,000 is $3162.50. That’s a difference of $550 because of the breakpoint system.
$35,000 5.75% = $2012.50 $55,000 4.75% = $2612.50 $55,000 5.75% = $3162.50 $3162.50 – $2612.50 = $550 savings
Mutual fund families also offer rights of accumulation to those who invest in Class A shares. Rights of accumulation come into play when you have already purchased some Class A shares and want to make a subsequent purchase. Going back to our previous example, you have purchased $35,000 of XYZ Growth Fund Class A and wish to make another purchase of $35,000. Rather than be charged 5.75 percent on the second purchase of $35,000, you would be charged 5.75 percent on the first $15,000 and then 4.75 percent on the remaining $20,000. Your total sales load for the second purchase of $35,000 would be $1812.50, rather than $2012.50 (saving you $200). This occurs every time an investor makes subsequent purchases of his Class A shares.