What is the timing of a mutual fund?
The timing of mutual funds concerns the practice of purchasing and selling a particular mutual fund in a very short period of time, sometimes on the same day. Some traders are engaged in the timing of mutual funds to achieve a short -term profit from the fund whose price is dramatically in a short period of time. Market timing funds are not illegal, but not supported because it increases the fund's transaction costs. These costs are distributed to all fund shareholders regardless of whether they practice the timing of mutual funds or not.
Most of the companies of mutual funds assess fees for redemption for a fine for the purchase and sale of the same fund over a certain time threshold. The time limit to avoid this punishment can range from 90 days to year. This sanction is assessed to discourage the timing of mutual funds and the management of transaction costs in the fund. The transaction fee is structured to eliminate the profitability of the timing of the mutual fund.
in 2003 Several Hedge Funds came under fire for the timing of the purchase of mutual funds and so -called late trading. Late trading is the practice of processing trades that are located after the market at 16:00 Eastern Standard Time (EST), as if they were located before 16:00 EST. This allows traders to take into account the global development that occurs after the market closure to have an unfair advantage over other investors. The same companies have also been investigated for collapsing with investment banks to allow the timing of the purchase of mutual funds for preferred customers without fines.
Investigation of accusations of timing of mutual fund purchases and late day trading was part of a major investigation, which at that time included almost every main investment bank in the United States. These banks were accused of cheating shareholders in different ways. Almost every bank and brokerage firm Zamed settled with the Securities and Stock Exchange Commission (SEC) and the General Prosecutor in New York in the investigation that lasted until 2006. The settlement was billions of US dollars and forced large banks to change their procedures in the future to avoid similar measures.
The timing of the market is different from the timing of the mutual fund market. The timing of the market is simply the practice of monitoring the market movement to determine the best time to buy or sell shares. Market timing is a valid investment strategy, albeit somewhat ineffective over time.