Next week, the Securities and Exchange Commission will vote on a revised rule that allows mutual funds to impose a 2% redemption fee on mutual fund shares that are traded in within five days of purchase, Dow Jones reports. Originally, the SEC sought to impose a mandatory fee, eventually changing its proposal to a voluntary rule.
Such a redemption fee is designed to deter market timing, which can impose additional trading costs on long-term investors in funds. Market timing is typically a problem in funds that invest in foreign markets and domestic small-cap companies.
While industry groups such as the Investment Company Institute support the current version of the rule, not everyone thinks that the new rule will provide substantive protection to investors. "It's hard to see how this is very significant," Barbara Roper, director of investor protection for the Consumer Federation of America, told Dow Jones.