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.
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Finance: What is a Rights Offering?6 Views
finance a la shmoop what is a rights offering all right people think a right
to buy and buy at a discount kind of companies may be fearful of a hostile [Woman pointing at woman behind reception desk]
takeover or some other big bad event that harms them and they want to give
existing shareholders preferential treatment over external non shareholders [Shareholders at a night club]
this rights offering is essentially a hostile takeover defense so they might [Bear attacking rights offering]
say ok pals for the next 60 days you have the right to buy an additional
share of our stock which is currently trading for 312 dollars each for $200 a [Man discussing company stock at presentation]
share and note the discount wink wink and you need to currently own 5 shares
for every one that you'll then buy sound like a plan well that is the company is [Man throws rights offering to woman]
offering those rights to buy at a discount and the shareholders can sell
those rights to other non shareholders for cash in essence is kind of a funky
one-time dividend that actually hurts both the would be external hostile [Metal anvil land on a bear]
takeover people but unfortunately also hurts the employees who have stock
options not actual shares so then they suffer the dilution of this rights [Anvil lands on employees]
offering with nothing to show for it yeah and you may ask is there such a
thing as a hostile take under mmm wondering about that [People protesting outside metal fence]
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The right of accumulation is the right to count cumulative mutual fund purchases toward discounted volume price breaks as they relate to commission...