A letter of intent is a letter signed by the purchaser of mutual fund shares that states the investor’s intention to invest a certain amount of money over a 13-month period. By agreeing to invest this sum, the investor in entitled to receive a lower sales charge on all purchases covered by the letter of intent. The letter of intent may be backdated up to 90 days from an initial purchase. Should the investor fail to invest the stated sum, they will be charged a sales charge adjustment.
In an effort to attract investors, mutual funds will offer shareholders a breakpoint schedule that will reduce the sales charge for larger investments into the fund. If an investor is unable to meet a breakpoint sales charge reduction with one purchase, the investor may sign a letter of intent to meet a minimum dollar amount over a 13 month period. During the 13 month period the investor will pay a lower sales charge on all purchases. Should the investor fail to meet the breakpoint to which he / she subscribed, the investor will be charged a higher sales charge. To meet the higher sales charge, the investor may send in a check or allow the fund company to sell shares. You are likely to see a number of questions on your exam relating to mutual fund breakpoints, sales practices and features. Our textbooks and exam prep software are packed with detailed information to ensure you pass your exam.
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