Using a Letter of Intent to Hit a Breakpoint

In order to reach a breakpoint with a mutual fund, some companies will allow you to use a letter of intent. Here are the basics of the letter of intent and how it can help you as an investor.

Breakpoints

The purpose of the letter of intent is to try to hit a breakpoint. A breakpoint is a discount that investors can receive in order for making a bulk purchase of mutual fund shares. The broker is willing to give you a discount because of the sheer volume of your purchase. Most of the time, this discount is reserved for those that make a large purchase all at once. With the letter of intent, you can spread your purchases out over a longer period of time.

Letter of Intent

With the letter of intent, you agree to purchase a certain amount of mutual fund shares over a given period of time. You sign the document and it is a binding agreement to make future purchases.

Retroactive Charges

If you do not meet your obligations and buy a certain amount of mutual fund shares, you will most likely have to pay retroactive charges. This is a penalty that usually amounts to the savings that you received with the breakpoint.

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