Redemption Fee

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".

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. 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. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  6. Consumer Staples

    Essential products such as food, beverages, tobacco and household ...
Related Articles
  1. Mutual Funds & ETFs

    6 Low Fee T. Rowe Price Mutual Funds

    Learn about T. Rowe Price's family of mutual funds and discover which funds in the company's lineup charge the least fees to shareholders.
  2. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  3. Products and Investments

    There's a Reason They're Called Junk Bonds

    The closing of Third Avenue Managemet's Focused Credit Fund is a warning to investors and advisors. Beware the junk.
  4. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
  5. Mutual Funds & ETFs

    The 3 Best Downside Protection Equity Mutual Funds

    Learn how it is possible to profit in a bear market by owning the correct selection of mutual funds that provide downside protection and opportunity.
  6. Mutual Funds & ETFs

    The 4 Best Lord Abbett Mutual Funds

    Discover the four best mutual funds administered and managed by Lord, Abbett & Co., LLC that offer investors a wide variety of investment strategies.
  7. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  8. Investing Basics

    5 Common Mistakes Young Investors Make

    Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences.
  9. Mutual Funds & ETFs

    The 3 Best Vanguard Funds for Value Investors in 2016

    Find out which of Vanguard's value funds are the best for building a solid core-satellite value investing strategy for your portfolio.
  10. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
RELATED FAQS
  1. What are the best mutual funds for investing in the aerospace sector?

    The only current mutual fund that is directly targeted to the aerospace and defense sector is the Fidelity Select Defense ... Read Full Answer >>
  2. 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 >>
  3. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  4. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  5. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  6. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center