The following comment on Letter Type B, or variations thereof, was submitted by
4 individuals or entities on S7-11-04.
Letter Type B:
I would like to provide you my comments for the proposed 2% redeption fees on
mutual fund purchases:
There is no study that indicates that there is an industry wide problem of abusive mutual fund trading that passes higher costs onto buy and hold investors.
There is no academic study that concludes that a mandatory redemption fee will eliminate abusive trading of mutual funds.
Therefore there is no logic in making the 90% of funds who do not now have redemption fees, most likely because they have concluded they have no abusive trading problem, impose redemption fees.
Imposing a mandatory redemption fee is equivalent to instituting a tax on mutual fund investors.
The SEC has for 30 years led the way in lowering the costs of investing for investors and it would be a radical reversal in policy should the SEC vote to impose a mandatory redemption fee.
Should the SEC impose a mandatory redemption fee, it will be the beginning of a trend that will take redemption fees out to 6 to 12 months in a relatively short period of time. This is also due to the fact that there is little competitive pressure in the mutual fund market place to encourage keeping the fees on for only a few days.
A great deal of short term trading of mutual funds is due to stale pricing of fund shares. To this end, fair value pricing is much more effective in quashing short term trading of funds than a redemption fee ever will be.
Funds have all the tools they need to control abusive trading of their fund shares. They need only use them to be effective. The solution is not mandatory redemption fees.