Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Researchers: Mutual Fund Fee Could Make Money for Investors

19.03.2010
Wait … what? A penalty fee that can actually make you money?

Short-term redemption fees could boost returns for mutual fund investors by as much as 3.27 percent a year, according to researchers in Texas Tech University’s Division of Personal Financial Planning.

The three authors of Redemption Fees: Reward for Punishment, presented at the 2010 Morningstar Ibbotson Conference in Orlando, Fla., found that fees that penalize investors for selling a fund before a certain period of time discourage investors from trading in and out of mutual funds, protecting long-term investors.

Redemption fees have enjoyed a recent surge in popularity, the study noted; the proportion of funds employing such fees more than tripled following the mutual fund market timing scandal of 2003.

Authors included Michael S. Finke, associate professor of personal financial planning, and David Nanigian of the Texas Tech College of Human Sciences and William Waller of the Kenan-Flagler Business School at University of North Carolina at Chapel Hill.

“Mutual funds initiated redemption fees mainly to show investors that they were serious about reducing abusive short-term trading practices,” Finke said. “The fees didn’t improve performance in funds that invested in larger, more liquid securities. However, micro-and small-cap funds saw a significant increase in performance after they imposed the fees.

“Unfortunately, redemption fees have a marketing problem since they are labeled a fee instead of what they actually are – a transfer from short-term to long-term investors.”

They found that short-term redemption fees benefit funds that invest in illiquid securities, or financial assets that are not easily sold or exchanged for cash.

They also noticed a link between the size of the penalty and the length of time investors are required to hold shares. Those funds that charged the maximum 2 percent penalty allowed by law and that imposed a holding period of more than two months produced the greatest returns over those funds that didn’t charge penalties.

“Many investors don't appear to be paying attention to redemption fees when making fund choices,” Finke said. “Unfortunately, we're already beginning to see many fund families eliminating them. Our research shows that long-term investors should seek out funds that impose fees on short-run redemptions.”

To view the entire article, visit http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1118959

Michael S. Finke, associate professor of personal financial planning, College of Human Sciences, Texas Tech University, at (806) 742-5050 ext. 25 or Michael.s.finke@ttu.edu

Michael S. Finke | Newswise Science News
Further information:
http://www.ttu.edu

More articles from Business and Finance:

nachricht The RWI/ISL-Container Throughput Index started off well in 2018
22.02.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

nachricht RWI/ISL-Container Throughput Index ending 2017 on a positive note
24.01.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Attoseconds break into atomic interior

A newly developed laser technology has enabled physicists in the Laboratory for Attosecond Physics (jointly run by LMU Munich and the Max Planck Institute of Quantum Optics) to generate attosecond bursts of high-energy photons of unprecedented intensity. This has made it possible to observe the interaction of multiple photons in a single such pulse with electrons in the inner orbital shell of an atom.

In order to observe the ultrafast electron motion in the inner shells of atoms with short light pulses, the pulses must not only be ultrashort, but very...

Im Focus: Good vibrations feel the force

A group of researchers led by Andrea Cavalleri at the Max Planck Institute for Structure and Dynamics of Matter (MPSD) in Hamburg has demonstrated a new method enabling precise measurements of the interatomic forces that hold crystalline solids together. The paper Probing the Interatomic Potential of Solids by Strong-Field Nonlinear Phononics, published online in Nature, explains how a terahertz-frequency laser pulse can drive very large deformations of the crystal.

By measuring the highly unusual atomic trajectories under extreme electromagnetic transients, the MPSD group could reconstruct how rigid the atomic bonds are...

Im Focus: Developing reliable quantum computers

International research team makes important step on the path to solving certification problems

Quantum computers may one day solve algorithmic problems which even the biggest supercomputers today can’t manage. But how do you test a quantum computer to...

Im Focus: In best circles: First integrated circuit from self-assembled polymer

For the first time, a team of researchers at the Max-Planck Institute (MPI) for Polymer Research in Mainz, Germany, has succeeded in making an integrated circuit (IC) from just a monolayer of a semiconducting polymer via a bottom-up, self-assembly approach.

In the self-assembly process, the semiconducting polymer arranges itself into an ordered monolayer in a transistor. The transistors are binary switches used...

Im Focus: Demonstration of a single molecule piezoelectric effect

Breakthrough provides a new concept of the design of molecular motors, sensors and electricity generators at nanoscale

Researchers from the Institute of Organic Chemistry and Biochemistry of the CAS (IOCB Prague), Institute of Physics of the CAS (IP CAS) and Palacký University...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

2nd International Conference on High Temperature Shape Memory Alloys (HTSMAs)

15.02.2018 | Event News

Aachen DC Grid Summit 2018

13.02.2018 | Event News

How Global Climate Policy Can Learn from the Energy Transition

12.02.2018 | Event News

 
Latest News

Basque researchers turn light upside down

23.02.2018 | Physics and Astronomy

Finnish research group discovers a new immune system regulator

23.02.2018 | Health and Medicine

Attoseconds break into atomic interior

23.02.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>