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Penalty fees for short term holding

edited February 2013 in Off-Topic
Fidelity has various short term redemption fees for 30 d 60 d 180 d.
Are there and firms that do not have any short term fees for mutual funds?
prinx

Comments

  • edited February 2013
    "Are there and firms that do not have any short term fees for mutual funds?" ...

    Of course there are! The only one of my half-dozen fund houses that levies this fee is T. Rowe Price - than only on certain funds. Their list of which funds have the fee (normally 2% within 90 days) is available at their site. My others, including D&C and Oppenheimer, don't levy the fee - at least in my experience. However, Oppenheimer has a 30-day "lock-out" similar to what Price uses to prevent frequent trading.

    I occasionally get tripped-up by the fee at Price (today in fact:-) but understand their reasons for having these. As perhaps mentioned already, the money goes back into the fund for benefit of longer term investors,

    Edit: Now there is another fee to which you may be referring. Many (I'd venture to guess most) fund houses do levy a close-out fee when you leave completely. These may be more common with their tax sheltered plans for which much paperwork is involved on their part. These types of fees vary greatly and I have little experience with them - being a pretty stable individual.


  • edited February 2013
    If you have access to JPM brokerage (Chase), they do not charge short term fees other than those charged by the fund company. My 401k plan offers this brokerage access as part of self-directed account.

    Speaking of Fidelity, they have eliminated 180 days and now have 60 days instead for outside funds in addition to the short term fees by the funds.
  • Thank you!
    I am not a trader but I have set aside some money to run a small test portfolio where I am following the buy and sell program of the suggestions from reading No Load Fund X. They do not recommend trading as an investment program but the amount of money at stake is very little. Just thought it would be interesting to see what would happen. That is why I am looking for a site that will let me buy and sell in less than 60 days. I would try to select a fund which does not have a short term redemption fee. Please let me know of any sites. I presently use Fidelity.
    prinx
  • Reply to @prinx: Reply to @prinx: Fidelity is the last place you want to be if you are actively trading mutual funds. It's been several years and someone can correct me on this, but if you trade in and out within 60 days you get hit with a $75 fee/commission. And that's on the non transaction fee funds in their fund supermarket. If it is a transaction fee fund you get hit with $75 at purchase. I believe you again get hit $75 if you trade out of it within the 60 day period. All in all, I was not impressed with the availability of funds through Fidelity.

    I have been at Scottrade most of this century. On the no fee funds in their network, they charge a $17 fee/commission if you trade in and out within a 90 day period. On their fee funds, it's $17 on purchase and $34 if you sell within 90 days.

    Some funds have their own short term redemption fees, 1% to 2% of what you invest if you sell within a specified period, usually 30 to 90 days. Don't confuse short term redemption fees with short term trading fees/commissions.

  • Reply to @Hiyield007:

    $75 penalty is for NTF funds in the supermarket (i.e. 3rd party) sold within 60 days. It used to be 180 days. Fidelity has reduced this period to 60 days. Schwab on the other hand increased it from 60 to 90 days (I think).

    While there is no such 60 day holding for Fidelity fund, for Fidelity funds, if you get in and out too many times (I believe 3 trips in 30 days), Fidelity will send you a warning letter and if you insist on such behavior you will be blocked from further purchases (but still no fee to sell).

    If you have paid $75 for a TF fund, you do not pay $75 again when selling as there is no 60 day holding requirement for TF funds.

    In either case, if you are within the fund's own short term period (which could be higher hand 60 for some), you do pay short term fee to the fund (not to Fidelity).

    If you are going to be doing frequent trading of funds that require shorter than 60 day period (for the lot you are intending to sell), I suggest you do this with ETFs. Fidelity provides 30 ETFs without transaction fees.
  • edited February 2013
    On the website of Scottrade they say that they charge $17 when you buy a transaction fee fund, AND they also charge you $17 when you sell it, see http://www.scottrade.com/online-brokerage/trading-fees-commissions.html#tab3 I just called them, and they confirmed.

    It differs from Fidelity, where you pay only on the way in. So if you invest a large sum of money, you pay $75, and then your exit is free, which is good if you are selling it in small amounts to get continuous income stream. Just as Investor said, you are NOT hit by $75 when you sell such fund, independently of the holding period. Meanwhile at Scottrade they charge you when you buy AND when you sell, so if you are going to take money from Scottrade in small amounts, you will suffer much more than at Fidelity.
  • Reply to @andrei: andrei, at Scottrade on their fee funds they also hit you with an additional $17 (total $34) if you exit within 90 days. Unless a fee fund is very compelling ala say a MSCFX, I avoid them like the plague at Scottrade.

  • edited February 2013
    Reply to @prinx: Sounds like a worthy endeavor. There are some fund houses catering to frequent traders. Expect fees to be high and fund quality to be mediocre. Here's a link to Pro Funds' statement re: "Frequent Trading" (They encourage it.). Minimum to open an account is $15,000. Don't know if that could be divided up into more than one fund. They have a no-load class, but likely carries high fees. http://www.profunds.com/trading_information/trading_policies.html

    Most discourage it, but I've found the "bark" usually worse the bite when dealing directly with the fund houses. Price's current policy would appear on the surface to allow what you propose. They only "lock" you out of repurchasing a fund within 30 days of selling same fund. (money market funds are exempted.) Of course, they might still intervene if the activity looked suspicious to their compliance people. While virtually all international bond and stock funds carry the 2% fee for redemptions within 90 days, many domestic funds, such as TRBCX still don't carry the fee.

    Brief editorial: You've heard all the reasons they give for not allowing frequent trading (usually related to cost factors). I'm more inclined to think it's more CYA. Following revelations of frequent trading in mutual funds in the late 90s - often by organized groups or insiders (like Richard Strong), fund companies were hit by a flood of lawsuits by folk claiming some of their $$ in the funds had been "skimmed" off by frequent traders - especially grevious if the fund already stated in writing (most did) that they prohibited the practice. Enough said.
  • edited February 2013
    Reply to @hank: >>> Following the revelations of frequent trading in the late 90s - often by organized groups or insiders (like Richard Strong), fund companies were hit by a flood of lawsuits by folk claiming some of their investment in the funds was "skimmed" off the funds by frequent traders - especially grevious if the fund already stated in writing (most did) that they prohibited the practice. Enough said.<<<


    At Strong they would let you buy any of their funds one day and exit the next and into infinity i.e. a constant barrage of buying and selling day after day be it in bit and pieces or entire positions and no commissions/fees whatsoever. INVESCO, which was also implicated along with Strong was the same way. Odd as it may sound, some of the guilty parties (and I am talking about your Average Joe fund traders here) who traded in and out like madmen received settlements of thousands of dollars many years later.
    You would have thought they would have eliminated the active traders from the more passive crowd when doling out the class action lawsuit settlements.
  • edited February 2013
    Reply to @Hiyield007: Yes - Remember it well, One estimate had Strong raking in $600,000 in trading "profits" in his own funds over a few years - lota money back in 1998, (I should note the Spitzer investigation and subsequent legal actions were in 2003.)
  • Reply to @prinx:
    WellsTrade does not impose any short term fees of its own. There are lots of reasons why I would not recommend this broker, but it does meet your "no short term redemption fee" requirement. Note that if you don't link a WellsTrade account to a Wells Fargo PMA checking account before April 1, you won't get 100 free trades/year, and for TF funds, the fee will be $35.
  • Reply to @hank:
    The SEC imposed Rule 22c-2 in response to the trading scandals. It requires only a seven calendar day redemption fee (of not more than 2%), and the fund has the option of demonstrating that the fee isn't necessary to avoid imposing it.

    It also excludes MMFs, and funds specifically designed for short term trading (like ProFunds).
  • edited March 2013
    Reply to @msf: Are not brokers like Wells required to collect a fund's redemption fee and forward it to the fund's sponsor? I can't see how doing otherwise would constitute a sustainable (not to mention equitable) system ...

  • Reply to @hank:
    Sorry, I tried to be clear. Unlike Fidelity brokerage (60 day short term trading fee on NTF funds only), Schwab (90 days on NTF), Scottrade (90 days on all NL funds including TF funds), E*Trade (90 days on NTF), etc., WellsTrade imposes no short term fees of its own.

    You are correct that brokers are supposed to monitor trading activity and collect the fund-imposed redemption fees.
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