Mutual Fund Timing


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.


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BREAKING DOWN '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.

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  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 >>
  3. Can mutual funds only hold stocks?

    There are some types of mutual funds, called stock funds or equity funds, which hold only stocks. However, there are a number ... Read Full Answer >>
  4. How do mutual funds compound interest?

    The magic of compound interest can be summed up as the concept of interest making interest. On the other hand, simple interest ... Read Full Answer >>
  5. Do mutual funds pay interest?

    Some mutual funds pay interest, though it depends on the types of assets held in the funds' portfolios. Specifically, bond ... Read Full Answer >>
  6. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>

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