What are the rights of accumulation? Meaning and examples 

When you invest in mutual funds, your investment will be subject to various fees. These fees are collected to cover administrative costs, fund management, and other expenses. Sales charges are among the most typical fees associated with mutual fund investments. This is an upfront charge in the form of a front load, which has a substantial impact on your return.

However, there are ways to deal with the cost. Are you wondering how? The answer is the right of accumulation.

What are the rights of accumulation?

As the name implies, the Rights of Accumulation (ROA) allows you to qualify for a breakpoint discount when the amount of the mutual fund you purchased and the amount already held equals an ROA breakpoint. 

A breakpoint is the threshold amount for buying a load-mutual fund’s shares beyond which you qualify for a lower sales charge. A load mutual fund is a type of scheme that charges a fee, also known as a load, when you buy or sell its shares. The load is usually a percentage of the amount invested and can range from 1% to 8.5%.

For example, suppose you want to invest in a mutual fund that has a front-end load of 5.75%. That means you will pay 5.75% of the amount invested as a sales charge when you buy the shares. However, if you invest more than a certain amount, say Rs. 5 lakhs, you may qualify for a breakpoint discount and pay a lower sales charge, say 4.5%. Here, you save 1.25% of the amount invested as a sales charge.

In other words, it allows you to combine your current and past investments in the same scheme or the same mutual fund family to reach a breakpoint and pay a lower sales charge. ROA is a term used widely in the US mutual fund market.

Suppose you have invested Rs. 30,000 in a scheme with a right of accumulation breakpoint of Rs. 50,000. If you invest another Rs. 20,000 in the same scheme or another mutual fund from the same family, you will qualify for a breakpoint discount and pay a lower sales charge. 

This way, you can take advantage of your previous investments and save money on the sales charge. Not all schemes offer ROA, and the breakpoints may vary depending on the fund house and the share class.

Accounts linkage to rights of accumulation

Some of the accounts that you can link to ROA are as follows. Note that ROA is not for Indian mutual funds.

• You must have accumulated wealth in Davis Funds created by an investor or their immediate family members, such as minor children under the age of 21 or their spouse.
• You have your investment in a trust account set up by the above persons.
• You have a solely operated business account.
• You are the single participant in the retirement scheme.

Besides the above categories, any organised group can combine accounts, provided the group was formed for a purpose other than dealing in mutual fund shares.

FINRA guide on rights of accumulation

FINRA stands for Financial Industry Regulatory Authority. It works under the Securities and Exchange Commission (SEC) supervision. Their primary role is to operate and maintain several market systems and facilities that facilitate the trading and reporting of securities transactions.

Here is what FINRA outlines regarding rights of accumulation importance. 

• The sales charge will be 5% of the investment if it is below $25,000.
• If the investment ranges between $25,000 and $50,000, the applicable charge is 4.25% of the amount invested. 
• For investments between $50,000 and $100,000, the sales charge drops to 3.75%.
• If the investment value is between $100,000 and $250,000, you must pay 3.25% of your capital investment amount as a sales charge. 

Conclusion 

Learning about the right of accumulation importance becomes crucial if you want to make the most of your mutual fund investments. Some funds offer this feature to reward loyal investors. It lets you lower your sales charges by adding up your current and previous investments to reach a certain level, called a breakpoint. Paying less in fees can increase your returns and grow your money faster. To learn more about such financial concepts, subscribe to StockGro. 

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