Can I sell a managed fund anytime?

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August 12 2019
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A managed fund, known as a mutual fund in other countries, is a type of fund that pools investors’ money to invest in a diverse portfolio of assets that are selected in accordance with the fund’s investment goals.

The fund may be composed of a single type or a combination of different asset classes, such as property, shares, bonds or other securities. A professional fund manager buys and sells the fund’s underlying assets according to the fund’s investment strategy and they’re also in charge of rebalancing the portfolio as needed.

Unlike stocks and bonds, which are purchased as full units, buying a share of managed funds means you’re buying a share in the entire portfolio.

Some popular managed funds are index funds, exchange-traded funds, shares or stock funds, bond funds and money market funds.

Can I sell my managed fund anytime I want?

Managed funds are ideally held to maturity, regardless if it’s a long-term or short-term investment.

But you can technically sell your shares in a managed fund anytime – although some funds can be more costly when redeemed. The fund’s price depends on the price of its underlying assets – represented as its net asset value per share (NAVPS) – and there’s no assurance that another investor will quickly buy your shares.

You may need to consider whether the fund you plan to buy is open-ended or close-ended because these can affect when you can enter and exit the fund, as well as its liquidity. To illustrate:

	Open-ended funds	Close-ended funds
Entry	Trade outside the market Only available through brokers Issuer can create new shares	Can only be purchased during initial public offering (IPO) Traded in the market after IPO Fixed number of shares
Maturity	No specific maturity (i.e. perpetual)	Typically matures in 2 to 5 years
NAVPS	Calculated and published at the end of the trading day	Calculated and published at the end of the trading week
Liquidity	Usually contain liquid assets	May have a greater number of illiquid assets
Exit/ Redemption	May be easier since assets are liquid and managers keep cash reserves for redemption	Usually have higher yields but redemption may take longer due to illiquid assets

Trades are executed only once per day, once the NAVPS has been calculated after the market closes. This means that only one price is applied to all redemption requests throughout the day.

Generally speaking, you may sell shares in your managed fund anytime – but it may cost you more money than any gain you earn depending on when you redeem your shares. Before selling your shares, consider the fund’s price and the other costs you may be charged.

How is the fund’s price calculated?

A managed fund usually contains a variety of assets whose prices move on a daily basis, but the value of the fund is only calculated at the end of the trading day

The fund’s price is represented as the net asset value (NAV), which is calculated as the fund’s assets minus its liabilities.

The NAV is then divided by the number of outstanding shares to get the net asset value per share (NAVPS), which is the price at which each share may be redeemed.

Costs to consider when selling managed fund units

There are some transaction fees and taxes you may have to pay for once you redeem managed fund shares.

Sales load
Take note of the sales charge you may pay when you enter and exit a fund. These are upfront fees that serve as commission or sales fees paid to the fund manager for buying or selling your shares for you.

Front-end load
When you pay a commission or sales charge upon entry for purchasing managed fund shares, you’re actually paying a front-end load.

Some funds do not charge this fee.

Back-end load
Back-end load refers to the upfront fee you pay when you sell your shares within a specified time frame, which may be considered as early redemption.

For instance, a close-ended five-year fund may indicate in its prospectus that only redemptions starting on the fourth year will be exempt from charges. If you sell your shares within the first three years, you will be expected to pay the back-end load due to early redemption.

Tax
You may be liable to pay capital gains taxes if you make a profit when you redeem your shares. As with any investment, you need to indicate any capital gains you incur when you file your taxes. But you may also use your capital losses to offset any gains to lower your tax payables.

When should I sell my managed fund?

With all costs and the fund’s price considered, the only time it is truly advisable to sell your shares is when your investment objectives have changed. Likewise, you should consider redeeming your fund shares if the fund manager changes the fund’s investment strategy or incurs too much loss despite a thriving economy and market.

Explore nestegg for more information about investing.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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