Redemption Fee

AAA

DEFINITION of 'Redemption Fee'

A fee collected by an investment company from traders practicing mutual fund timing. This stiff penalty is used to discourage short-term, in-and-out trading of mutual fund shares. Generally, the fee is in effect for a holding period from 30 days to one year, but it can be in place for longer periods.

Also referred to as an "exit fee", "back-end load" or "contingent deferred sales charge".

INVESTOPEDIA EXPLAINS 'Redemption Fee'

Mutual fund timing is a legal but frowned-upon practice that has a negative effect on a fund's long-term investors. Mutual fund timing means that investors may be subjected to higher fees occasioned by the transaction costs of the short-term trading of fund shares.

After the designated minimum holding period for an investment in a fund has elapsed, investors are not charged for redeeming shares of the investment. If incurred, redemption fees do not go to the investment company, but are credited to the fund's assets.

RELATED TERMS
  1. Redemption

    The return of an investor's principal in a fixed income security, ...
  2. Exit Fee

    A fee or charge assessed to an investor for withdrawing money ...
  3. Redemption Suspension

    A provision on a hedge fund preventing the withdrawal from the ...
  4. Mutual Fund Timing

    A legal, but frowned-upon practice, whereby traders attempt to ...
  5. Smart Beta

    Investment strategies that emphasize the use of alternative weighting ...
  6. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
RELATED FAQS
  1. Are mutual fund performance numbers reported net of fees (operating expenses and ...

    The answer depends on how you define "operating expenses."Let's look at a cinematic metaphor to clear up this apparent ambiguity. ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  2. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  3. 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?
  4. Investing Basics

    Are You Investing With A Purpose?

    We all appreciate having a wide variety of investing choices, but a random collection of investments does not make an investing plan.
  5. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  6. Bonds & Fixed Income

    Figuring Out How To Cover Your Liability Bases

    Whenever we talk about the asset-liability approach to portfolio management (ALM), the concepts of immunization and cash flow matching come into play.
  7. Investing

    Active Funds: Getting What You Are Paying For?

    Fund investing could have hidden costs that can potentially make a big impact on your final return, particularly over the long-term.
  8. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  9. Mutual Funds & ETFs

    How To Minimize ETF Fees

    ETFs offer broad exposure to a variety of styles, sectors, regions and more. But the fees can be a bit steep. Here are ways to minimize them.
  10. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.

You May Also Like

Hot Definitions
  1. 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 ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. 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 ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center