Rights Of Accumulation (ROA)

The right that’s granted to buyers by some mutual funds permitting the buyers to count existing holdings of the fund together with new purchases when determining the scale of the sales fee on the new shares. This right applies to funds that charge fees on a wage schedule, whereby the more shares that are purchased, the lower the fee that’s charged on a percentage basis. Thus the fee charged on succeeding purchases is decided by all purchases, past, and present, not just by new purchases.

Rights of accumulation (ROA) are rights that allow an investment trust shareholder to receive reduced sales commission charges when the amount of mutual funds purchased plus the quantity already held equals a rights of accumulation (ROA) breakpoint. Additionally, there’s no limit on how long the mutual fund needs to be held to qualify for a ROA.

For example: We wish to buy $2,000 of Fund XYZ with a sales charge of 5.50% to add to our existing $19,000 of the same fund in our account. Given that Fund XYZ is linked to a ROA and that the breakpoint is $20,000, we would qualify for a reduced sales charge (i.e. 5.25%). Also, the entire purchase ($2,000) would qualify for the reduced sales charge and not just the amount in excess of $20,000.

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

In order to meet a breakpoint and purchase Class A shares at a decreased sales charge under Rights of Accumulation (ROA), we may combine:

  • The current value of PGIM Investments mutual funds shares you already own. For more information on the account types that can be combined for ROA.
  • The value of money market shares you have received as a result of exchange from shares of other PGIM Investments mutual funds.  Purchases directly into a money market position are excluded from ROA.
  • The value of the shares you are purchasing for purposes of determining the applicable sales charge.

Typically, there is no time limit on how long the mutual fund needs to be held to qualify for the rights of accumulation. 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.

With ROA, the sales charge on Class A shares decreases, at certain breakpoints, as the number of our investment increases.

Initial sales charges start at:

  • 5.50% for most equity funds
  • 4.50% for most taxable fixed-income funds
  • 4.00% for most tax-exempt fixed-income funds

Breakpoints start at:

  • $25,000 for most equity funds
  • $50,000 for most taxable fixed-income funds
  • $100,000 for most tax-exempt fixed-income funds

Rights of accumulation (ROA) breakpoints may be important for prime 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. During this example, the investor would wish to take a position another $20,000 to succeed in the subsequent front-end sales breakpoint of three.75%. If an investor features a $1 million investment or reaches the $1 million ROA breakpoint they typically wouldn’t pay a front-end sales charge.

 

Information Sources:

  1. prudentialmutualfundcust.custhelp.com
  2. investment_terms.enacademic.com
  3. investopedia.com