What occurs when an investor signs a Letter of Intent (LOI) with a mutual fund?

When an investor signs a Letter of Intent (LOI) with a mutual fund, it enables them to qualify for lower sales charges on their investment. The LOI essentially commits the investor to invest a specific dollar amount within a defined time frame, usually 13 months. By making this commitment, the investor benefits from reduced sales charges on their investments, as mutual funds often have breakpoints that reduce fees when larger amounts are invested.

The LOI is a way for investors to take advantage of these breakpoints without needing to deposit the entire amount upfront. This is particularly beneficial for investors who may not have the full amount available at the time of the initial investment but plan to invest more soon. Therefore, this feature of the LOI allows all investments made during the specified period to receive lower sales charges, making it a valuable tool for those looking to maximize their investment efficiency in mutual funds.