Loading the player...

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.

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.

RELATED TERMS
  1. Redemption Fee

    A fee collected by an investment company from traders practicing ...
  2. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  3. Exchange-Traded Mutual Funds

    Investopedia explains the definition of exchange-traded mutual ...
  4. Mutual Fund Yield

    Dividend payments divided by the value of a mutual fund’s shares. ...
  5. Mutual Fund Custodian

    A trust company, bank or similar financial institution responsible ...
  6. Fund Supermarkets

    An investment firm or brokerage that offers investors a wide ...
Related Articles
  1. Financial Advisor

    A Mutual Funds Guide for Young Investors

    Learn how mutual funds work, why they are so popular and how younger investors can get started by putting mutual funds in their IRAs or 401(k)s.
  2. Investing

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
  3. Financial Advisor

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  4. Investing

    4 Mistakes to Avoid When Choosing Mutual Funds to Invest in

    Mutual funds are a great way to build wealth but not all of them are the same. Investors have to be mindful of fees, turnover, redundancy and performance.
  5. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  6. Investing

    A Guide to Mutual Funds Trading Rules

    Make sure to review this guide on the dos and don'ts of mutual fund trading before you invest, including how trades are executed and which fees to look out for.
  7. Investing

    The Advantages Of Mutual Funds

    Learn how to get diversification, liquidity and professional management at an affordable price.
  8. Financial Advisor

    How to Rate Your Mutual Fund Manager

    What to really look for when you're deciding on a mutual fund.
  9. Investing

    When To Buy A Mutual Fund

    There is money to be made in mutual funds, but investors fall into several pitfalls that keep them from maximizing their profits. Read these tips to take the uncertainty out of investing in mutual ...
  10. Investing

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
RELATED FAQS
  1. What is mutual fund timing, and why is it so bad?

    Timing is the practice whereby traders try to profit from the short-term differences between daily closing prices. This is ... Read Answer >>
  2. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  3. How do you find out the price of a mutual fund?

    The easiest way to find out the price of a mutual fund is to look at its net asset value (NAV). NAV is the total value of ... Read Answer >>
  4. How much of a company's stock can a mutual fund own?

    There is no written rule that stipulates how much of a company a mutual fund can own. Instead, there are two major factors ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center