Friday, December 24, 2010

Redemption Fee

A redemption fee is charged by some funds when investors withdraw or redeem units. The difference between a redemption fee and a back-end load fee is that redemption fees go back into the fund, while back-end loads add to the profits of the fund company. The purpose of charging a redemption fee is to compensate for the liquidity management requirements of withdrawals, as well as discouraging investors from constantly switching in and out of funds. The redemption fee a fund charges may be time dependent e.g. it may apply to withdrawals by those holding the fund for less than a certain time frame - in order to discourage the switching or mutual fund timing practices that can hurt longer term holders of the fund. As with all fees it is important to be aware of what fees are charged before investing.

Synonyms: Exit fee, Withdrawal fee
 
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