Redemption Fee

What is a 'Redemption Fee'

A redemption fee is 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".

BREAKING DOWN '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. Mutual Fund Timing

    A legal, but frowned-upon practice, whereby traders attempt to ...
  2. Exchange Fees

    A type of investment fee that some mutual funds charge to shareholders ...
  3. Cumulative Discount Privilege

    A way that an investor in a mutual fund can qualify for lowered ...
  4. Redemption

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

    A fee or charge assessed to an investor for withdrawing money ...
  6. 12B-1 Plan

    A no-load mutual fund that is allowed to use fund assets to pay ...
Related Articles
  1. ETFs & Mutual Funds

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  2. ETFs & Mutual Funds

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  3. ETFs & Mutual Funds

    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.
  4. ETFs & Mutual Funds

    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.
  5. ETFs & Mutual Funds

    Why Are ETF Fees Lower Than Mutual Funds?

    Discover all the reasons ETFs typically have lower fees than mutual funds, including their passive management and the absence of load and 12b-1 fees.
  6. ETFs & Mutual Funds

    Looking to Buy Mutual Funds Online? Here Is How

    Learn how to buy mutual funds online; discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
  7. ETFs & Mutual Funds

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  8. ETFs & Mutual Funds

    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.
  9. ETFs & Mutual Funds

    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.
  10. Financial Advisor

    How To Optimize Your Portfolio and Reduce Fees

    Investment fees aren't avoidable altogether, but there are strategies investors can employ to keep those fees at bay and reduce the impact on returns.
RELATED FAQS
  1. What's the difference between a load and no-load mutual fund?

  2. 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 Answer >>
  3. In what situations would mutual fund fees be higher than ETF fees?

    Compare the fees associated with investing in mutual funds and exchange-traded funds and find out why ETF fees are usually ... Read Answer >>
  4. How does a no-load fund make money?

    Find out how no-load mutual funds make money, what the purpose of a sales charge, or load, is and why some funds have higher ... Read Answer >>
  5. What is an appropriate small cap mutual fund fee?

    Figure out the industry average fee for small-cap mutual funds, and determine the appropriate fee an investor should pay ... Read Answer >>
  6. Why do mutual fund companies charge management fees?

    Learn why mutual funds charge their investors management fees, which include the cost of hiring investment advisors and various ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center