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Finance Dictionary and Glossary of Investment Terms
Mutual Fund Timing
A legal but frowned-upon practice whereby traders attempt to profit from the short-term differences between the daily closing prices of a mutual fund.Timing occurs when investors attempt to gain short-term profits from buying and selling mutual funds. This has a negative effect on the fund's long-term holders, as they will be subjugated to higher fees due to the short-term trading. In order to prevent this, many mutual funds will impose a short term trading penalty upon the sale of funds that are not held for a minimum period of time. This transfers the short-term costs of buying and selling new shares within the fund's portfolio to those investors not planning to stay with the fund for the long-term. Don't confuse market timing with mutual fund timing. Market timing is a practice of trying to predict the best time to buy and sell stocks for the purpose of a short-term gain. Mutual fund timing is an practice publicly frowned upon by many mutual fund companies in their prospectuses.