Mutual Fund Timing

AAA

DEFINITION of 'Mutual Fund Timing'

A legal, but frowned-upon practice, whereby traders attempt to gain short-term profits from buying and selling mutual funds to benefit from the differences between the daily closing prices.

Don't confuse market timing with mutual fund timing. Market timing is a very acceptable practice of trying to predict the best time to buy and sell stocks.

INVESTOPEDIA EXPLAINS 'Mutual Fund Timing'

Mutual fund timing has a negative effect on a fund's long-term investors, as they will be subjected to higher fees due to the transaction costs of the short-term trading. In order to prevent this practice, most mutual funds impose a stiff short-term trading penalty, known as a redemption fee, upon the sale of funds that are not held for a minimum period of time, which generally ranges from 90 days to one year.

In September of 2003, some mutual fund companies were investigated for permitting hedge funds to "time" mutual funds purchases. These hedge funds paid the mutual fund companies money for the right to buy and sell funds on a short-term basis without any short-term penalties.

VIDEO

Loading the player...
RELATED TERMS
  1. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  2. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  3. Prospectus

    A formal legal document, which is required by and filed with ...
  4. Redemption Fee

    A fee collected by an investment company from traders practicing ...
  5. Timing Risk

    The risk that an investor takes when trying to buy or sell a ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  1. Can I sell mutual fund shares below their minimum intial purchase amount without ...

    Yes. You can freely buy and sell shares of a mutual fund regardless of any requirement for a minimal initial purchase amount ... Read Full Answer >>
  2. What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  2. Mutual Funds & ETFs

    8 Reasons To Dump A Mutual Fund

    Buy and hold is not forever. Find out when it pays to sell your fund and move on.
  3. Mutual Funds & ETFs

    Canary Capital Partners: Anatomy Of A Scandal

    Learn how a hedge fund scammed its way to profits and caught investors off-guard.
  4. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  5. Mutual Funds & ETFs

    The Impact of the Janus Market Timing Ruling

    A look at the impact of the Janus Supreme Court ruling on market timing.
  6. Mutual Funds & ETFs

    These 4 Precious Metals ETFs Help Combat Inflation

    A look at 4 precious metal ETFs to combat inflation when it hits.
  7. Mutual Funds & ETFs

    Why Mutual Funds Lose Their Five-Star Ratings?

    Ratings help people feel confident about their decision before purchasing. Morningstar’s rating system helps people to find and invest in mutual funds.
  8. Mutual Funds & ETFs

    PIMCO vs. BlackRock: Weighing Mega Fund Managers

    A look at the world's biggest bond manager and the world's largest asset manager.
  9. Professionals

    Are Alternative Mutual Funds, ETFs Right for You?

    Alternative mutual fund and ETFs are gaining popularity but are they a good idea for your regular Joe investor?
  10. Investing

    Hedged ETFs That Help You Cushion Currency Impact

    If you’re an investor holding non-U.S. assets, the returns on your investments will be affected when you translate your investment from its local currency

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center