Understanding Products and Their RisksDifficulty 3/5
A mutual fund investor signs a document committing to invest enough over 13 months to reach a reduced sales charge. What is this?
- AA right of accumulation, which secures the breakpoint discount in advance
- BA net transaction agreement, which secures the breakpoint discount in advance
- CA surrender charge waiver, which secures the breakpoint discount in advance
- DA letter of intent, which secures the breakpoint discount in advance
Show answer and rationale
Correct: D. A letter of intent is forward looking: the investor states an intention to reach a breakpoint and receives the reduced charge on the way there. A right of accumulation is backward looking, counting holdings already owned.
- A — A right of accumulation counts existing holdings toward a breakpoint rather than future purchases.
- B — A net transaction concerns how a trade is priced, not how a sales-charge discount is obtained.
- C — Surrender charges apply to variable contracts and annuities, not to mutual fund breakpoints.