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

    How to Know if Your 401(k) Plan Fees Are Too High

    Finding out how much you are paying for your 401(k) plan takes some research, but you should know exactly what you are getting for your money.
  2. ETFs & Mutual Funds

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  3. Managing Wealth

    What's a No-Load Fund?

    A no-load fund is a type of mutual fund that does not charge a front-end, back-end or level sales charge.
  4. Managing Wealth

    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.
  5. ETFs & Mutual Funds

    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.
  6. ETFs & Mutual Funds

    Lower Your Fees With Mutual Fund Breakpoints

    The lower the sales charge you pay, the greater your returns. Find out how to cash in.
  7. Managing Wealth

    3 Questions To Find Your Trading Plan

    Ask yourself these three questions to figure out which strategy is best for you.
  8. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  9. ETFs & Mutual Funds

    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.
  10. ETFs & Mutual Funds

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
Trading Center