Rights of Accumulation ROA Meaning Breakpoints Example

Rights of Accumulation ROA Meaning Breakpoints Example

Rights of Accumulation (ROA): Meaning, Breakpoints, Example

What Are Rights of Accumulation (ROA)?

Rights of accumulation (ROA) are rights that allow a mutual fund shareholder to receive reduced sales commission charges when the amount of mutual funds purchased plus the amount already held equals a ROA breakpoint.

Key Takeaways

  • ROA grant holders of mutual fund shares the potential for reduced loads (commissions) when purchasing more fund shares.
  • Breakpoints for load mutual funds are the dollar amounts for the purchase of the fund’s shares that qualifies the investor for a reduced sales charge.
  • While common, not all funds offer ROAs, so check before purchasing if you plan to accumulate a sizable position.

Understanding Rights of Accumulation

Rights of accumulation (ROA) breakpoints are structured by mutual fund companies to provide commission discounts for investors. Mutual fund companies determine the sales commission fee structures for investment funds. An investor incurs sales charges when they buy shares of a mutual fund with an intermediary for which the sales charges apply. Mutual fund companies may offer ROA breakpoints with their sales commission schedules.

There is no time limit on how long the mutual fund needs to be held to qualify for ROA. Not all mutual funds offer ROA breakpoints so investors should be sure to identify them for a mutual fund if they exist. ROA breakpoints typically refer to front-end sales charges and therefore are instituted primarily on fund share classes with a front-end sales charge.

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Rights of Accumulation Breakpoints

Breakpoints are set at various levels to offer investors a discount on sales charges when they make larger investments. They are determined by the mutual fund and integrated within the fund distribution process. They are typically offered for funds with a front-end sales charge but may be available for other types of sales charges as well.

Mutual funds are required to give a description of breakpoints and eligibility requirements in the fund prospectus. By reaching or surpassing a breakpoint, an investor will face a lower sales charge and save money.

The Financial Industry Regulatory Authority (FINRA) provides the following guide for mutual fund ROA breakpoints. ROA breakpoints may come into effect when an investor’s holdings reach $25,000.

Investment and Sales Charge:

  • Less than $25,000 5.00%
  • At least $25,000, but less than $50,000 4.25%
  • At least $50,000, but less than $100,000 3.75%
  • At least $100,000, but less than $250,000 3.25%
  • At least $250,000, but less than $500,000 2.75%
  • At least $500,000, but less than $1 million 2.00%
  • $1 million or more No sales charge

ROA breakpoints can be important for high net worth investors buying shares through a financial intermediary that charges the fund’s front-end sales charge. ROA breakpoints can influence the investor’s long-term investing plans. In this example, the investor would need to invest another $20,000 to reach the next front-end sales breakpoint of 3.75%. If an investor has a $1 million investment or reaches the $1 million ROA breakpoint they typically would not have to pay a front-end sales charge.

Example of ROA

For example: Suppose an investor would like to buy $5,000 of Fund ABC Class A shares with a front-end sales charge of 5.00% charged by the intermediary. The investment of $5,000 adds to the investor’s existing investment of $25,000 in the fund’s Class A shares already. Fund ABC follows the same ROA breakpoint schedule outlined by FINRA.

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With the new investment of $5,000, the investor now has an accumulation of $30,000. Therefore, their additional purchase of $5,000 qualifies for a discounted front-end sales charge of 4.25% versus the standard 5.00%.

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