Voluntary accumulation plans are an example of an investing strategy that allows incremental contributions to a mutual fund. Over time, the use of a voluntary accumulation plan allows the mutual fund shareholder to build a substantial position with the fund. This can be an excellent solution for anyone who wishes to build an investment portfolio, but is not in a position to invest a large sum of money at one time.
Along with the advantage of being able to build up an investment over an extended period of time, the voluntary accumulation plan has the benefit of being an investment option with mutual funds that are considered to be relatively low risk. While it is true that low risk investments do not yield a high rate of return, the investor can still anticipate a profit that is higher than the average rate of interest on a standard savings account. For an investor who does not have a great deal of disposable income, this aspect of the voluntary accumulation plan can be very attractive.
A second benefit is that the plan will allow mutual fund shareholders to take advantage of dollar-cost averaging over the period of accumulation. Essentially, this means that shares can be purchase when the price per unit is relatively low. The result is more shares for the investor at a lower initial cost. When the current price per unit is higher, the investor continues to make incremental contributions to the plan, allowing the balance to build up until another temporary dip in price makes it feasible to purchase more shares.
Setting up a voluntary accumulation plan is not difficult to accomplish. A financial advisor can evaluate the current economic status of the investor and determine a reasonable amount to contribute to this type of plan on a recurring basis. In many cases, the advisor can also make recommendations of mutual fund plans that permit the voluntary accumulation method. There are variations of the voluntary accumulation plan that are structured for individual investors, as well as employees who wish to participate in a plan of this nature through a corporate plan.
