Sales breakpoints give large investors a discount on fees by minimizing the cost of front-end charges on A-share mutual funds. These programs serve the interests of both the investor and the mutual fund company by encouraging the conglomeration of assets with a single provider and helping minimize investor fees, which increases overall return. For example, if you only have $1,000 to invest you might pay a 5.75% sales charge to invest in A-share mutual funds, whereas if you had $100,000 you would only pay 3.25%. Moreover, if you had $1 million to invest you wouldn’t pay any sales charge at all. This difference in sales charges can amount to serious savings, which means more money invested and more compound interest over time. Read on to find out how to take advantage of breakpoints.

Mutual fund companies offer many creative ways to allow investors access to sales breakpoints, but generally speaking, investors need relatively large sums of money to benefit from these programs. You may be entitled to a sales breakpoint in any of the following circumstances. (For related reading, see The Lowdown On No-Load Mutual Funds .)

Once you pay a sales charge, you won’t have to pay again as long as you keep your money within the same mutual fund family. This allows investors to shift among varying strategies over time without continuously incurring sales charges. For example, if you pay a 5% sales charge to get into a large cap mutual fund but then choose to shift your assets into a small cap mutual fund, you can do this without paying another 5% load; if you shift assets to another fund family you will be subject to another sales charge.

Sales breakpoints can have profound benefits for your portfolio. The lower the sales charge you pay to invest in a mutual fund, the more money you invest, and the more money you will earn over time through the benefits of compounding returns. (To learn more about compounding, read Understanding The Time Value Of Money and Overcoming Compounding’s Dark Side .)

Tricks of the Trade

Be aware of little tricks that brokers play to deny you rightful access to breakpoints. Brokers are paid on the sales charge you pay, creating a strong economic motivation to keep your sales charge as high as possible. Here are a few simple tricks to reduce your fees:

• If you have enough money to take advantage of breakpoints, don’t spread your money across multiple mutual fund families because in such small amounts, you won’t qualify for breakpoints. Yes, something can be said for the intellectual diversification of using multiple fund families, but asset class diversification is most important and virtually any mutual fund family can provide this service. (For more, see Diversification: It’s All About (Asset) Class .)
• Don’t split your investments among various types of share classes. This means don’t put some of your money in Class A shares, some in Class B shares and some in Class C shares, all in small enough amounts to not qualify for a breakpoint. Some mutual fund families might accommodate this practice and still allow breakpoints, but don’t assume this is the case. (For more insight, read The ABCs Of Mutual Fund Classes .)
• Don’t first invest in Class A shares, sell them, and then reinvest in Class B shares. The likely rationale a broker would use in this regard is to say the A-share fund isn’t performing well enough and that you can avoid another front-end sales charge by shifting into B-shares. The result of this scenario is that the broker is paid twice. If you fall prey to this practice, you’ll end up paying both a front-end sales charge and a deferred sales charge.