Series 6

By Investopedia AAA

Investment Companies - Redemption of Mutual Fund Shares

Buying and Redeeming Mutual Funds
Mutual fund shares are a continuous public offering as defined by the SEC. All sales must be accompanied by a prospectus. Because of the continuous offering nature of mutual fund shares, a rule called Regulation T prohibits the purchase of mutual fund shares on margin. This is an important point to remember when your clients ask to buy mutual fund shares on loan in a margin account. It can't happen!

An investor can redeem fractions or whole shares of his or her mutual fund by selling them at the NAV. When will the redemption price be determined? At the same time that the fund company computes the daily NAV, at the close of business of the NYSE or as stated in the prospectus.

Mutual fund companies must pay the proceeds of the redemption amount to the investor within seven calendar days.

Look Out!
You will need to know the time within which an investment company has to forward the proceeds of the mutual fund redemption to the investor. Do not confuse this time period with stock or bond settlement, and remember: CALENDAR days, not business days like other securities!

Important Factors in the Comparison of Funds

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