SIE practice questionmediumOpen-end mutual funds (NAV, front-end/back-end loads, 12b-1 fees, breakpoints, LOI, ROA)
An investor is considering purchasing $100,000 of a Class A mutual fund that charges a front-end sales load, provides breakpoints, and imposes a 12b-1 fee. Which feature would most directly reduce the initial sales charge the investor pays at the time of purchase?
- ASwitching to Class B shares
- BPaying the 12b-1 fee annually
- CQualifying for a breakpoint✓ Correct answer
- DReinvesting distributions
Explanation
Why C — Qualifying for a breakpoint
Qualifying for a breakpoint (C) means the investor’s large purchase qualifies for a reduced sales charge, directly lowering the front-end load. Switching to Class B shares (A) would avoid the front-end load but introduce a back-end load. Paying the 12b-1 fee (B) is an ongoing expense and does not affect the initial charge. Reinvesting distributions (D) does not impact the initial sales charge.
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