Redemption Fee

A redemption fee is similar to a very temporary high end load. A redemption fee will reduce your withdrawal amount if you sell the fund’s shares within extremely short time frames. If you sell out quickly, these fees are applied in addition to any back-end load and commissions you may face. You should always check in advance to see if redemption fees will be applied on sale, how long they last, and the amount they reduce withdrawals.

The redemption fee exists to compensate other investors that suffer losses from rapid trading. This fee prevents additional capital from being withdrawn from the fund, leaving it in securities. Fund Management does not have to drain the redemption pool as heavily with these fees in place. The redemption pool is a collection of liquid cash or cash equivalents initially drained by withdrawals from the fund. By slowing the amount paid out and reducing the drain on redemption pools, funds reduce the likelihood they will have to actually liquidate securities to meet redemptions and withdrawals.