Mutual funds are one of the most flexible stock market investments available. There are thousands to choose from, each with its own set of rules, requirements and minimums, so it is easy to find one that suits your purposes. Before choosing a mutual fund, however, you should acquaint yourself with all of the fund's rules, or you could find yourself paying penalties to move your money.
The information about fees, penalties, minimums and more can be found in a mutual fund's prospectus, which is available on the website of the fund company. You can also research mutual funds online at Yahoo! Finance, Morningstar.com and other money related websites.
Most mutual funds do not penalize investors in any way for selling their shares (which is the same thing as taking their money out of the fund). However, there are two major exceptions to this rule: tax-managed funds and funds with back-end loads, also known as contingent deferred sales loads.
Tax-managed mutual funds discourage frequent selling because selling can have negative tax implications that affect the fund's performance. Therefore, most tax-managed mutual funds charge an "early redemption fee" if you sell your shares within a certain time after purchase, usually at least a year, but sometimes five years or more. These fees usually range from 1 to 2% (2% is the limit imposed by the SEC).
Mutual funds with back-end loads also charge fees for early redemption, but these fees have nothing to do with tax implications. Mutual fund loads are sales fees, and back-end loads are a somewhat sneaky way for brokers to sell funds that have loads as "no-load" funds. In the case of a back-loaded fund, the sales fee (usually 5%) is not charged when you purchase the fund, but if you sell the fund prematurely, you will be stuck paying the load. The amount of the load for which you are liable decreases each year you own the fund, and usually disappears entirely after you have owned the fund for five years.
There are other funds (that are not necessarily tax-managed) that charge early redemption fees--this information will always be disclosed in the prospectus, so be sure to read carefully. Additionally, many low-cost online brokers (like Etrade) will charge account fees on mutual funds that are sold too close to their purchase date. Although these fees are not charged by the mutual fund directly, they can still eat into your returns, so be aware of your broker's policy before selling shares.
Lindsay Woodland is a professional opera singer, semi-professional pastry chef and personal finance enthusiast from Queens, N.Y. She holds a bachelor's and master's degree in music and speaks German and Italian in addition to her native English. Woodland has been a freelance writer and editor since 2008 and writes for multiple websites and blogs.