DEFINITION of 'Periodic Payment Plan'

A type of investment plan, often sold to military personnel, that allows an investor to accumulate shares of a mutual fund indirectly by contributing a small, fixed sum over a period of usually 10, 15, or 25 years. In exchange for these payments, the investor owns an interest in a plan trust, which invests in a mutual fund. The plan trust's sponsor makes money by charging a "creation and sales charge", also known as a "front-end load", to investors. This sales charge is as high as 50% of the first 12 months' worth of payments, making periodic payment plans a potentially expensive investment option, especially for investors who do not remain invested for the full length of the plan.

BREAKING DOWN 'Periodic Payment Plan'

Most periodic payment plans also have an annual fee and small monthly custodial fees. As a result of these fees, investors may be able to get a better deal by purchasing mutual fund shares directly. While the low required monthly contribution may be a selling point of a periodic payment plan, some brokerage companies, whose fees may be lower than that of a periodic payment plan, will allow investors to make small monthly investments and avoid large minimum investments if they establish automatic deposits.



Also known as a "contractual plan" or "systematic investment plan".

RELATED TERMS
  1. Periodic Payment Plan Certificate

    A certificate representing ownership interest in a periodic payment ...
  2. Voluntary Accumulation Plan

    An investment method in which a retail investor periodically ...
  3. Spread-Load Contractual Plan

    A fee-payment structure applicable to mutual funds in which the ...
  4. Variable Benefit Plan

    A type of retirement plan in which the payout changes depending ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. SEC Form N-27F-1

    A filing with the Securities and Exchange Commission (SEC) that ...
Related Articles
  1. 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.
  2. Financial Advisor

    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. 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.
  4. Financial Advisor

    Helping 401(k) Plan Sponsors with Costs

    Even the most savvy advisors and plan sponsors have trouble navigating 401(k) fees and costs. Monitoring them and working with plan providers can help.
  5. Retirement

    Do You Have a Crummy 401(k)?

    High-cost, outdated plans can keep your retirement portfolio from thriving. Here's what to do – and the 2015 Supreme Court case that could help.
  6. 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.
  7. 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.
  8. Investing

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  9. Financial Advisor

    5 Secrets You Didn’t Know About Mutual Funds

    Learn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
  10. Investing

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
RELATED FAQS
  1. What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions and ... Read Answer >>
  2. When are mutual funds considered a bad investment?

    Learn when mutual funds are considered a bad investment for investors who worry about high expenses, lack of control over ... Read Answer >>
  3. Where do I look for fees that I am charged on investments? What are those fees called?

    The fees and expenses charged for investments vary. The fees usually depend on the type of investment and the investment ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center