What Is a Mutual Fund Redemption Fee?

Brokerage houses charge redemption fees to help encourage long-term investment.

A common charge for a mutual fund is a redemption fee, which is a fee you have to pay should you redeem your mutual fund shares. People may confuse redemption fees with load or sales fees, but they are not the same.

Redemption Fees

When you sell shares in your mutual fund before a certain time, the brokerage charges you a redemption fee. Brokerages base the amount of the redemption fee on a percentage of the amount of the mutual fund shares you are selling.

Purpose

Redemption fees pay for the costs associated with selling your mutual fund shares. These costs do not include load or sales fees paid to individual brokers.

Time Limitations

Usually a brokerage will only charge you a redemption fee if you sell your mutual fund shares before a stated holding time period. Holding time periods vary by brokerage, but generally range from between one to three months.

References

• Folio Investing: Mutual Fund Redemption Fees
• The U.S. Securities and Exchange Commission: Invest Wisely: An Introduction to Mutual Funds