Understanding redemption fees

Instead of up-front sales charges, some load funds charge a redemption fee. With this kind of load, you pay a fee when you cash out of the fund by selling your shares. The size of the redemption fee depends on the fund you are invested in; each fund has its own fee structure, often on a sliding scale, so that the redemption fee decreases the longer you hold the fund.
For example, a typical redemption fee structure provides that, if you redeem your mutual fund shares within a six-year window, you can expect to pay anywhere from 6% to 1% — 6% during the first year, 5% during the second year, and so on. The redemption fee drops off at the seventh year. (By design, the fee structure encourages you to hold on to your investment for a longer time, which benefits the fund company.) Carefully study the sales brochure or prospectus for any fund you’re thinking of investing in. Make sure you understand the nature, size, and structure of any load charge.
Some load funds impose up-front sales charges; others include redemption fees; others levy annual commissions for as long as you own the fund; and still others impose various combinations of these charges. Read the fine print so you won’t be blindsided by unanticipated expenses.