Rights of Accumulation - ROA

  

Categories: Stocks, Derivatives

See: Rights Offering.

It’s basically the right to count cumulative mutual fund purchases toward discounted volume price breaks as they relate to commissions. That is, you get to accumulate your volume discount over time.

Consider the whole mutual fund breakpoint thing. Like...from $250 to $2,500, the commission on The “Best Things in Life Are Fees” Fund is 5%. Then, on $2,500 to $10,000, its 3%. And on $10k to $100k, it’s 1%. Blah blah. Something like that. Breakpoints in fees, i.e. you get a break at $2,500 and $10,000 and $100k.

So...say you invested 5 grand and got the 3% rate. If you had the right of accumulation, then you could invest, say, another $2,500 a year for 2 years, and then receive retroactively (if that’s how this fund’s indentures described it) a reduction in your commission from that 5% to 3%.

Why would funds do this? Well, remember that mutual funds charge investors a percentage of the assets they manage, year after year after year. The commission upfront is kind of a small number when compared with total revenues to the mutual fund over decades of happy clients continuing to hold that fund.

So pretty much anything a fund can do to bring a client in the door (and then have them hold on to the money for long periods of time) is smart business for the fund.

So giving an investor the right to accumulate volume...and then giving that customer volume price breaks along the way...makes a lot of sense financially. The real dough is made by the management company collecting its annual management fee year after year after year.

Related or Semi-related Video

Finance: What is right of accumulation?2 Views

00:00

what is the right of accumulation? All right well it's

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basically the right to count cumulative mutual fund purchases toward discounted

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volume price breaks as they relate to Commission's that is you get to

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accumulate or you have the right to accumulate your volume discount over time [counting money out on table]

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like you don't need to put in the order for a ton of mutual fund shares upfront

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they credit you over time so remember that whole mutual fund breakpoint thing

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like from $250 to 2500 the Commission on the best things in life our fees fund

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yeah that's 5% then on 2,500 to 10,000 the Commission is 3% and then like from

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10 to a hundred grand it's like 1% blah blah blah blah blah something like that

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break points in fees ie you get a break at twenty five hundred and ten grand and

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a hundred grand right there's a break there so if you invested five grand and

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got the three percent retroactive Commission rate if you had the right of

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accumulation well then you can invest say another twenty five hundred a year

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for two years for a total of another five grand and then receive retro

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actively essentially a credit if that's how this funds indentures described it

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it's essentially a reduction in your commission from that 5% to 3% yeah that

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works very clever why would mutual funds do

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this well remember that mutual funds charge investors a percentage of assets [investor looking at a pyramid of money]

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the assets they manage year after year after year well the Commission upfront

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is kind of small as a number when compared with total revenues to the

01:38

mutual fund over decades of happy clients continuing to hold that fund and

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pay the annual fee so pretty much anything a fun can do to bring a client

01:47

in the door and then have them hold on to the money for long periods of time is

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smart business for that fun so giving an investor the right to acumulate volume [counting money on table]

01:56

and then give that customer volume and price breaks along the way well it makes

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a lot of sense financially the real dough is made by the management company [investor looking at pyramid of money]

02:03

collecting its annual management fee year after year after year

02:08

yeah that is one happy piggy [money going into expanding piggy bank]

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