Mutual Fund Breakpoints (Break Points) Refunds Should Be Available If You Were Overcharged

Fund Breakpoints are the investment levels where mutual funds load or charge drop, due to volume. These Fund Breakpoints are meant to provide an incentive to invest more with a fund. Regulators in January, 2003 have indicated that many funds have been over charging investors.

What is a Fund Breakpoint? Lets use a theoretical example.

INVESTMENT LEVEL
UP TO
LOAD
$100,000 5%
$200,000 4%
$500,000 3%
$1,000,000 1%
Over $1,000,000 0%

Using the above example:

If one invested $100,000 in the fund, the commission (load) should be $5,000 (100,000 x .05).

If one invested $200,000 in the fund, the load should be $8,000 (200,000 x .04). If one invested, $100,000 in January and $100,000 in March the cumulative load should still be $8,000. The load on the first $100,000 would be $5,000, and the load on the second $100,000 should be $3,000. However, many funds would have charged $5,000 on each $100,000 purchase. This would be an excess charge of $2,000.

The fund should refund $2,000 to this investor.

We are not saying that these funds are dishonest. This problem may be the result of incorrect recordkeeping. Sometimes the funds have policies that the Breakpoints may be cumulative within families. Thus, purchases by the  husband, wife and kids may reduce loads further.

There are some funds that do not have Breakpoints.

(Sometimes Breakpoints are referred to as Break Points).

Please call David Kaufmann, C.P.A., at Denver Tax Software 1-800-326-6686, if you would like further information.

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