Yes. You can freely buy and sell shares of a mutual fund regardless of any requirement for a minimal initial purchase amount or the application of a redemption fee. In this sense, the investment is completely liquid in that investors in any mutual fund have unrestricted access to their money.
However, there are financial consequences for dropping below a fund's minimal balance level and/or triggering a redemption fee. These vary among the different fund companies, and some are more onerous than others.
Let's say that a fund in which you invest has a minimal initial purchase level of $2,500. Subsequent to your initial investment, you sell shares to take money out of the fund and your fund balance drops to $2,400. Generally, fund companies take a look at all fund balances once a year to look for "low balances", to which they will assess a one-time annual fee. In this case, a $10 charge seems to be fairly typical.
Whether you paid a front-loaded sales charge is immaterial. The front-load sales charge goes to the intermediary - your financial planner, investment adviser or brokerage firm - and is immediately deducted from your investment. It's gone, no matter what actions you subsequently take and it has no bearing on the sale of fund shares.
Redemption fees are used with some funds to discourage market timers from adversely affecting a fund's performance. In-and-out trading in mutual funds by speculators is disruptive of fund performance, which generally translates into a negative impact on total return. Fund companies apply redemption fees to funds they feel are susceptible to this activity. They are meant to protect fund investors with longer term interests.
The general fund company practice is to use a 90-day holding period - although this can extend to as much as a year - for a redemption fee. This means that any fund shares sold prior to 90 days after an initial purchase in the fund would be, for example, subject to a 1% charge. Because market timers work with razor thin margins, they are thus deterred from rapid trading of mutual fund investments.
Therefore, if you respect the redemption period, you'll avoid any early redemption penalties.
In this regard, mutual fund investors should pay attention to this bit of related information:
Twenty years ago, the average holding period for a mutual fund was eight years and the average annual total return for this investor was 12%; in 2007, the average holding period is 10 months with an annualized average return of 4-6%. The message here should be very clear.
For related reading, see Long-Term Investing: Hot Or Not?