In an effort to limit market timing activity, firms are increasingly attaching redemption fees to funds. As of the end of March, 585 funds charged redemption fees, up 82 percent from the end of 1999, according to a study by Financial Research Corporation of Boston.
'Increasingly individuals are eschewing the buy-and-hold mantra, believing that active sector rotation and dynamic asset allocation strategies can result in superior returns,' according to the FRC study. 'This disruptive movement of assets in and out of funds forces a portfolio manager to either maintain excessive cash reserves or sell securities unwillingly in order to meet redemption requests.'
The period during which fees are imposed has also lengthened, moving from an average of 7.5 months at the end of 1999 to 9.4 months at the end of March, according to FRC. The level of the fees though has remained constant. The average was 111 basis points at the end of 1999 and 113 at the end of March 2001, according to FRC. The Securities and Exchange Commission imposes a two percent limit on redemption fees.