Finance: What is a redemption charge?

A redemption charge is a charge applied when you redeem shares of a mutual fund in a deferred commission purchase structure.

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Transcript

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that the commission of the fund you're buying is paid

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up front That is if you've invested ten grand on

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a three percent up front commission structure while when you

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step up on the swimming pool starting blocks and the

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money is actively starting to be invested your actually starting

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the race with ninety seven percent of that ten grand

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or ninety seven hundred bucks with three hundred dollars having

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gone to the broker for the pleasure of selling you

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that fund but some mutual funds are sold as b

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shares where there is essentially an exit fee or rather

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where there is a charge when you redeem the fund

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either because you just want to sell it or you

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die in your estate liquidates it or martians kidnap you

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and force you at martian gunpoint to call in a

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sell order right Well in many cases redemption fees are

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waived if you hold the mutual fund some extended period

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of time like a year a few years five years

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something like that If you hold the fund an extended

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period the annual management fee paid to the people buying

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and selling securities on your behalf can then cover the

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broker's commission So the money managers aren't actually losing money

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in the form of that three hundred dollar commission paid

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you a broker who sold you ten grand of fund

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only to have you three weeks later dump it and

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move on to another funds Well there are other benefits

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and having this system set up because it encourages mohr

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careful selection of mutual funds and longer duration in holding

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them And yes the obvious marriage and dating allegories apply

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here But we just won't go So when you hop

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in bed with a given mutual fund read the fine

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print because well all kinds of hidden feed germs exist

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in bedrooms airport bathrooms and glass elevators Well all around 00:02:02.98 --> [endTime] the world