What Is a Periodic Payment Plan Certificate?

A periodic payment plan certificate is proof of an ownership interest in a mutual fund that allows its investors t🦋o build up a stake by making small regular payments. The investment structure is known as aꩵ periodic payment plan.

Periodi꧟c payment plans are sometimes known as contracౠtual plans or systematic investment plans. There are now many other options for investors with modest means to invest in mutual funds, exchange-traded funds, or individual stocks regularly.

Understanding the Period🎐ic Payment Plan Cert🅺ificate

Investors in mutual funds typically buy a number of shares. However, online brokerages make the process easier by allowing fractional share purchases. For example, an investor could automatically invest $100 per month in a mutu🐎al fund. Since fund prices fluctuate in the market, that might be 3.1 shares one month and 3.4 shares the nex🐽t month.

The periodic payment plan certificate is another variety of investment. In this case, the investors do not actually own shares of the mutual fund. Instead, 💞they have an own💮ership claim on a fractional interest in the plan trust.

Participants typi🗹cally invest in the plans by making regular payments of fixed sums over a period that ranges from 10 to 25 years.

The Securities and Exchange Commission (SEC) regulates investment companies that sell periodic payment plan certificates through Section 27 of the Inౠvestment Company Act of 1940. It establishes the maximum fees that can be charged, requirements for companies issuing periodic payment plan certificates🌠, the rules regarding the surrender of certificates, their refund privileges, and more.

♈Advantages and Disadvantages of Periodic Payment Plan Certificates

Periodic payment plans have a low barrier of🦩 entry, making them an affordable option even for those with modest investing budgets. Participants can get started for as little as $50 monthly.

The downside is that they usually involve fairly steep fees, which are typically front-loaded, meaning they are due in large part during the first year after an account is opened. The SEC estimates that these fees can eat up half of a $50 monthly investment for the first year of a periodic payment plan. 

Because of these hefty fඣees, investors may be better off bu🌳ying shares in a mutual fund or ETF directly.

Marketed to the Military

At on🔯e time, periodic payment plan certificates were marketed to military personnel, although there is no inherent advantage in them for people in the military. Partly due to some abuses in this practice, the federal government enacted the Military Personnel Financial Services Protection Act in September 2006.

This law regulates and monitors the sale and marketing of securities, life insurance products, and other financial vehicles on military bases. The act made it illegal to sell periodic payment plan certificates to military personnel and banned their sale on military bases. The act did not invalidateꦑ existing certificates held by military personnel.

Some Alt𝓀eꦯrnatives to Periodic Payment Plan Certificates

An investor with a mod𒅌est monthly sum to invest now has many other options w💜ith low fees.

• Investors can now buy 澳洲幸运5官方开奖结果体彩网:fractional shares of stock, 澳洲幸运5官方开奖结果体彩网:mutual funds, or ETFs through discount brokerages including Robinhood Financial, Fidelity, and Charles Schwab. For example, an investor who couldn't afford a single share of Amazon at its current price of $3,000-plus could buy a fractional slice of a share through an online brokerage.
• Online brokers also allow account holders to create periodic investment programs for themselves. For example, at Vanguard you can set up an automatic monthly transfer from your checking account, with the proceeds to be invested in your choice of Vanguard funds.