A redemption charge, also known as an 'exit fee' or 'back-end load', is a fee charged by some funds when an investor sells or redeems shares. The charge is typically a percentage of the value of the shares being sold.
Redemption charges are designed to discourage short-term trading and to compensate the fund for the costs associated with liquidating assets. This fee can impact the net return on investment, especially if the shares are sold soon after purchase when the charge is typically higher.
When considering funds with redemption charges, investors should be aware of how these fees fit into their investment strategy and time horizon. Funds with high redemption charges might not be suitable for those who anticipate needing to withdraw their investment in the short term. It's important to read the fund’s prospectus to understand all associated fees and to consider them in the context of overall investment goals and costs.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.