Periodic Payment Plan Certificate

A periodic payment plan certificate is a certificate representing ownership interest in a mutual fund that allows investors to buy shares through a process of making small regular payments. That investment structure is known as a periodic payment plan.

Periodic payment plan certificates provide documented proof of participation in and ownership of interest in a periodic payment plan. These plans are sometimes also known as contractual plans or systematic investment plans.

Participants typically invest in these plans by making regular payments in fixed sums over a period that would commonly range from between 10 and 25 years. Investors do not actually own shares of the mutual fund in the direct, typical sense. Instead, they have a claim on an interest in the plan trust.

Through section 27 of the Investment Company Act of 1940, the Securities and Exchange Commission regulates the investment companies that sell periodic payment plan certificates. It determines the maximum sales load that can be charged, requirements for companies issuing periodic payment plan certificates, rules regarding surrender of certificates, refund privileges and more.

A periodic payment plan is an investment vehicle with a low barrier of entry, making it an affordable option even to those with modest investment budgets. Participants generally can get started with a very small amount of money, often as little as $50, with that same sum due monthly or at pre-determined periodic intervals. However, the downside is that these plans usually involve fairly steep fees, which are typically front-loaded and due in large part during the first year of opening a new account. These charges can amount to as much as half of the payments made during this period. Because of the heft fees incurred, investors may be better off financially by buying mutual fund shares directly.

In the past, periodic payment plan certificates were frequently sold to military personnel despite there being no advantage for military personnel to own this type of investment, and no requirements for military personnel to participate. Partly due to related abuses, the federal government enacted the Military Personnel Financial Services Protection Act in September 2006. This legislation was intended to regulate and monitor the sale and marketing of securities, life insurance products, and other financial vehicles on military bases. This Act made it illegal to sell periodic payment plan certificates to military personnel, and banned the sale of these plans on military bases. The act did not invalidate existing certificates held by military personnel.