Big Investors Versus Small Investors

A legitimate question for mutual fund owners to ask is what kind of break they get for making a large mutual fund purchase, ranging from hundreds of thousands of dollars to millions of dollars. After all, buying in quantity is supposed to result in cost savings.

According to one observer, "In the world of mutual funds, volume doesn't count for very much." ^[5] A big reason for this is Internal Revenue Service (IRS) and SEC regulations. These regulations are quite strict in not allowing funds to offer special prizes to investors for large purchases. For example, a fund is not going to give you a free trip for making a large investment because of the fear of running into IRS problems.

^[5] This quote, and much of this discussion, is based on Stephen Taub, "A Lukewarm Welcome," Mutual Funds , March 2002, pp. 92 “93.

There are some discounts on the load fee, or sales charge, however, which are perfectly legal. For example, if an investor purchases $1 million or more of a single mutual fund, the sales charge is often waived altogether. Even at much lower levels, the sales charge is sometimes reduced. For example, the Putnam Voyager Fund reduces the up-front sales charge from 6.1 percent to 3.6 percent for an investment of $100,000.

Such reductions are legitimate because they recognize the heavy fixed costs involved in processing a transaction. Essentially the same paperwork and transaction processing is involved for a $100,000 investment as would be involved for a $2,500 investment.