Renounceable Right

  

Categories: Derivatives

We’re the proud owner of 500 shares of stock for Botaniface, Inc., a company that manufactures and sells botanical anti-aging products. But, even though we like Botaniface, and even though the stock has been performing pretty well lately, we don’t necessarily want to buy any more shares right now. That’s why we were happy Botaniface issued a “renounceable right” this year, which is the option—but not the obligation—to buy additional shares at a discounted price.

The great thing about a renounceable right is that, not only do we not have to buy the shares if we don’t wanna, but we can sell the right to someone else. That way, even if we don’t exercise the right, we’re still not completely losing out on the deal.

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Finance: What is right of accumulation?2 Views

00:00

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

00:07

basically the right to count cumulative mutual fund purchases toward discounted

00:14

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

00:28

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

00:32

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

00:39

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

00:44

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

00:53

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

00:58

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

01:03

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

01:16

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

01:22

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

01:34

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

01:50

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

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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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