Mutual Fund Redemption Fees
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Mutual Fund Redemption Fees
Redemption fees are charges imposed when investors sell shares back to a mutual fund. Other names for these charges are back-end loads, exit fees, and deferred sales loads.
Things To Know
- Redemption fees are deducted when shares are sold.
- Redemption fees may decline as an incentive for you to keep your money invested in the fund.
How redemption fees are levied
Not all funds charge a fee for share redemption. Those that do, deduct the redemption fees from the proceeds of the sale. They are calculated on the amount sold and may be limited to the value of the original purchase, excluding capital gains and reinvested dividends. Redemption fees are listed in a fund’s prospectus.
Many deferred sales loads are contingent deferred sales charges. These are sales charges that decrease over time. In many cases, they eventually disappear.
Why do some redemption fees decline over time?
The reduction is an incentive for investors to keep their money in their funds. For example, a contingent deferred sales charge could be 5 percent during the first year the shares are held, 4 percent during the second year, and declining until it hits zero percent during the sixth year.
Compare a fund’s redemption fees to the overall costs you would incur if there was a commission to buy and another commission to sell a comparable investment. It is often better to compare a fund’s performance after all commissions and fees have been deducted to see if there really is a difference in performance.