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Redemption Fee

Also known as a redemption charge, exit fee, or short-term trading fee.

What is a redemption fee?

A redemption fee is charged when an investor withdraws money from a fund within a limited time frame following the purchase of the fund shares. This fee goes back into the fund itself.

  • A redemption fee is charged on all shares sold.
  • Funds impose redemption fees to deter market-timers and avoid passing transaction costs on to remaining shareholders.

A redemption fee is charged on shares an investor sells. Redemption fees may vary across different funds but cannot exceed 2% of the sales amount, a limit set by the SEC. Redemption fees do not go into the pockets of the fund company but rather into the fund itself to offset transaction costs for remaining shareholders.

Redemption fees are a measure imposed by funds, particularly mutual funds, to discourage market-timers. As such, redemption fees are incurred shortly after investing in a fund, commonly within 30, 180, or 365 days. The charge is normally imposed on the ending share value, appreciated or depreciated from the original value.