Smartest Way to Sell Mutual Funds
The smartest way to sell mutual funds is the method that best suits your individual needs and circumstances. If completing the sale quickly is important, you may find that the speed of selling through a broker more than compensates for the small transaction cost. In some circumstances, you may enjoy a small savings by selling the shares back to the fund company directly.
No Fee No-Load Funds
Most major brokerages have a list of no-load mutual funds you can buy and sell without paying a transaction fee. A no-load fund is a fund that does not have an added sales fee, either when you buy it -- a front-end load -- or when you sell it -- a back-end load. If you want to sell shares of a no-load fund on your brokerage's no-fee list, and the shares are in your account, selling through your broker is the fastest way of selling the shares and costs nothing. Call your broker and ask him to sell the shares. Alternatively, sell them yourself through your online broker.
No-Loads With Transaction Fee
You can sell shares of no-load funds in your account that are not on the brokerage's no-fee list for a transaction cost ranging from $2 to about $30. In some instances, you may decide that the rapidity of execution when you sell through your broker makes the small transaction fee worth it. When you sell through your broker, there's a three-day holding period mandated by federal law from the time of sale -- which is usually immediate -- until the settlement date, when you can access the funds.
Shares You Hold
In some circumstances you may hold the mutual fund certificates yourself rather than in a brokerage account. If so, you may want to sell them to the fund company directly. In doing so, you'll save the transaction fee; fund companies don't charge shareholders for buying or selling shares. A mutual fund company has seven days to put your check in the mail.
Shares of a mutual fund with a back-end load have the load fee deducted from the proceeds when you sell the shares. Often, the percentage declines over time. A fee that might be as much as 3 percent if you sell the shares immediately after buying them eventually declines to a smaller percentage or to nothing if you hold the shares for one or more years. In some instances -- if the fund isn't performing well or if you have an immediate need for the money -- you may want to pay the higher fee and sell immediately. In other circumstances, you may want to hold the fund until the fee declines further. Most mutual funds charge a redemption fee if you sell a fund you've held less than 30 to 90 days. Both the redemption fee -- a percentage of the share value -- and the holding time depend upon the fund. Always check the specifics of your fund's redemption fee policies before selling. It may pay to wait.
I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.