Investing in a Mutual Fund Contractual Plan
Arthur P. Mellard -
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A mutual fund contractual plan is where an investor must
make a long-term commitment of 10 or 15
years.
A mutual fund contractual plan is where an investor must make a
long-term commitment of 10 or 15 years.
These plans come with high upfront costs and are expensive if
the full term of payment is not completed. Read the prospectus
thoroughly whenever investing in a mutual fund contractual
plan.
A mutual fund contractual plan will allow you to accumulate
shares of a mutual fund indirectly by making small regular
monthly payments, usually as little as $50. These plans have a
number of common characteristics that you should be aware of
before investing.
These plans have a high first year cost to pay for a sales and
creation cost equal to 50% of the first 12 monthly investments.
Moreover, if you increase the amount of your monthly payments,
you may owe an additional creation and sales charge on the new
investment. This charge will be deducted from your next 12
monthly payments if you increase the face amount of your
payment.
Typically, a mutual fund contractual plan will require a
long-term investment up to180 fixed monthly payments over a
15-year period. This includes the option of making payments for
up to 25 years adding up to 300 investments. If you terminate
the mutual fund contractual plan prior to expiration or stop
making payments even though you are not required to complete
the payments a sales charge of up to 50% of the amount invested
could be applied .
This type of plan contains no direct mutual fund ownership if
you invest in a mutual fund contractual plan. This means one
does not directly own shares in a mutual fund; rather he will
own an interest in a trust. The trust invests your regular
payments, minus fees and expenses, in shares of a mutual
fund.
Cancellation and Refund Rights:
One type of cancellation and refund right an investor will
obtain is a 45 day cancellation notice within 60 days of your
first investment in the plan. One can also cancel the plan
within 45 days of the mailing date of that notice. If the
investor does cancel the plan they will receive a cash refund
equal to the current value of your investment and the total
sales and creation charge originally paid. The current value of
your shares may or may not be more than your original
investment.
Another type of cancellation is the 18 month cancellation and
refund right after your first investment in the plan. Choosing
to cancel the plan after the 45 day cancellation period means
the investor will receive a cash refund equal to the current
value of your investment and the amount of the sales and
creation charge paid that exceeds 15% of the total investments.
A notice of your 18-month cancellation right will be issued if
you miss three or more of your monthly payments during the
first 15 months of the plan or one or more payments after the
first 15 months. Canceling a plan after 18 months would mean
the investor isn’t entitled to a refund of any creation and
sales charge. This charge can be up to 50% of your periodic
investments.
The sponsor may terminate your plan if you fail to make
investments for a period of 6 or 12 consecutive months. The
investor may be able to avoid termination by making at least
one monthly payment during each 6 or 12 month period depending
on the plan.
RESOURCE BOX
Mutual Fund Performance.net provides detailed information on
research, ratings and articles, all designed to help you invest
confidently in mutual funds.
Source: http://www.mutualfundperformance.net/Mutual-Fund-Contractual-Plan.html
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