Understanding Your Periodic Payment Plan

A periodic payment plan is a unique type of investment that allows certain people to more easily invest in the mutual fund market. This type of investment plan is often sold to military personnel as a way to save for the future. Here are the basics of the periodic payment plan and whether or not you should consider investing in one.

Periodic Payment Plan

A periodic payment plan is a long-term agreement that involves an investor setting aside a predetermined amount of money each month. With this type of plan, you are investing a regular amount of money that is invested in mutual funds. Instead of buying shares directly, you will be buying partial shares most of the time. If you invest $100 per month, you will be purchasing exactly $100 worth of mutual fund shares regardless of what the price per share is. You are actually buying into a trust that uses the money of all of its customers to purchase shares of the mutual fund. This gives you partial ownership of shares depending on how much money you have invested.

Most of the time, these plans are set up to run 15 to 20 years or longer. You will sign a contract that says you plan on making regular monthly payments over that term.


The idea of investing in a periodic payment plan can be attractive. However, when one considers the fees that you will be paying for this service, it might not be as attractive anymore. Many of these plans will charge a significant amount of money for their services. Most of the time, you will have to pay a charge on the front end of the plan. This is similar to a front end load fee, however, it is charged by the trust instead of the mutual fund. This fee can be very substantial depending on which company you use. Some of these plans charge as much as 50% of your total investment for the first year. Therefore, if you decide to invest $100 per month in this plan, $50 of it will go towards fees every month for the first year.

After the first year is up, you will also most likely have to pay an annual maintenance fee and a custodian fee. Therefore, this type of investment can really eat into the overall value of your portfolio. Before getting involved with this type of plan, you need to make sure that the fee structure makes sense for you.


The main advantage that this type of plan presents is convenience. Many people need to have some sort of system set up for them in order to invest regularly. Otherwise, many investors end up forgetting to invest or finding other ways to spend the money. This type of plan also makes it possible to purchase shares of a mutual fund even if the value of the shares is more than you can afford to invest. This allows you to get more shares over the long-term.

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