A unique type of mutual fund purchasing program is the contractual plan. These plans require the investor to commit to purchasing a set dollar amount (say $10,000) and to make payments toward this amount over time. The plan usually calls for payments to be made monthly in a fixed amount over a 10-15 year time frame. In return, the mutual fund company issues trust certificates for their interest in the shares.



Exam Tips and Tricks
plans are almost extinct due to the wide variety of no-load and lower load plans today. However, you can expect several questions on this topic on the Series 26 exam!


Sales Charges
The maximum allowable sales charge over the life of the plan is 9%. However, there are two different types of "load plans" permitted. Note that under either of these plans, a full refund of all sales charges is made if the investor cancels within 45 days of inception.

  • Front-end load plan - Up to 50% of the first year's payments may be applied to the sales charge. If the investor cancels within 18 months of inception, his or her refund consists of the net asset value of the shares plus all sales charges paid minus 15% of total payments made.

  • Spread-load plan - No more than 20% of one year's payments may apply to sales charges and no more than 16% average over the first four years may be deducted for sales charges. Refunds (after 45 days) consist of just NAV; there is no refund of sales charges.

Also, a custodial fee is charged (in addition to the sales charge) since there are increased custodial and accounting functions in this type of plan. Payments from the investor are deposited with the custodian (or trustee).

Other important features of contractual plans include:

  • Two types of prospectuses are required - one for each underlying fund, and one specific to the terms of the contractual plan itself.
  • Lump sum purchases may be permitted.
  • Dividends and capital gains are automatically reinvested at NAV.
  • Breakpoints are available based on the scheduled payments.


Fixed vs. Variable Annuities

Related Articles
  1. Financial Advisor

    Explaining Front-End Load

    A front-end load is a commission or sales charge paid by the investor at the initial purchase of an investment.
  2. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  3. Managing Wealth

    How And When To Switch Your 529 Plan

    Just as with any investment, you should review your plan to make sure it's meeting your needs.
  4. Investing

    Lower Your Fees With Mutual Fund Breakpoints

    The lower the sales charge you pay, the greater your returns. Find out how to cash in.
  5. Investing

    ETFs vs. Mutual Funds: The Lowdown on Costs

    Confused about the full range of fees on ETF and mutual funds? Here's a quick guide on fees and expenses.
  6. Financial Advisor

    The 4-1-1 on 403(b) Plans

    These plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
  7. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  8. Investing

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  9. Investing

    The Lowdown On No-Load Mutual Funds

    These funds let you cut out the middleman - and the fees.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center