Systematic Investment Plans (SIP) are regulated as Periodic Investment Plans under the federal securities laws. The primary objective of a SIP is to enable investors to clearly define an investment goal and then to help them reach it. While the majority of these plans are sold to military personnel, they are also sold to civilians. These plans allow you to accumulate shares of a mutual fund indirectly by making small regular monthly payments, usually as little as $50, over a period of 10, 15 or 25 years. Individual plans can differ from one another. For a specific type of systematic investment plan—sometimes referred to as a contractual plan or periodic payment plan—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. Indeed, sales fees are sometimes as much as half of your first year’s investment. Investors should beware of SIP policies containing misleading claims. It is also important to keep in mind that if you invest in a SIP, you will not own shares in a mutual fund. Rather, you own interest in a trust, and the trust invests your regular payments in mutual fund shares.
For more information, see:
- Financial Industry Regulatory Authority (FINRA): https://www.finra.org/investors/investing/investment-products/mutual-funds#overview
- FINRA’s overview on mutual funds for background before entering a SIP.
- The Securities and Exchange Commission (SEC): http://www.sec.gov/investor/pubs/perpayplans.htm.
- The Securities and Exchange Commission's information on Periodic Payment Plans.
[Last updated in June of 2023 by the Wex Definitions Team]
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