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.

  1. Late-Day Trading

    An unethical (if not illegal) practice of a hedge fund purchasing ...
  2. Market Timing

    1. The act of attempting to predict the future direction of the ...
  3. Material News

    News released by a company that might affect the value of its ...
  4. Net Asset Value - NAV

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

    The simultaneous purchase and sale of an asset in order to profit ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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