From: Dave InLV []
Sent: Wednesday, February 25, 2004 4:46 PM
Subject: (s7-11-04)


I just saw on Bloomberg TV that the SEC is proposing a 2% mandatory penalty for short-term (whatever that may mean) trading in mutual funds to discourage market timing.

As an investor for more than 30 years, I have the following comments:

  1. There are many funds which already have such rules on their books. If this new penalty is slapped on top of that then an investor will be facing a loss of around 4% (or more than one-half of the entire yearly yield for a typical high-yield bond fund) if he decides to bail out because of a downturn. This will make the potential risk of investing in mutual funds quite unacceptable.
  2. It is not at all clear why "market timing" has been picked out for such adverse treatment anyway because it is common sense that nobody can make money unless he knows when to get in and get out, i.e., time the market. In reality, it is not market-timing but rather the practice of certain funds to exempt their preferred investors from rules that apply to the rest of their clientele that is the problem.
  3. As an investor, I have no problem with market timing as long as the stated rules of a fund apply to everybody the same way. Personally, I would rather invest in funds with no short-term redemption penalty so that my funds are always liquid and I think that choice should be left to the individual investor.
  4. I am, therefore, totally against the imposition of such misguided Big-Brotherish rules and if it is imposed anyway then I will immediately take my entire investment out of the mutual funds and move into something else. Since I may not be the only one who feels that way, I would advice you to think carefully about the ramifications and consult the small investors before you act.


Dave DasGupta
Las Vegas, NV