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| esquire415 |
 Posted: Fri Nov 16, 2007 2:21 pm Post subject: Overselling a mutual fund |
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I dont exactly know what this means. I'm exchanging one mf for another mf (Ameritrade). An "exchange" is done by selling all or partial shares of the current fund and using the proceeds to buy a new fund. The buy and sell are executed on the same day. I've done it before and it has worked. But for some funds it doesn't seem to. What gives?
i.e.
exchange EUROX for SSEMX (accepted)
exchange UMEMX for SSEMX (Overselling a mutual fund is not allowed.) |
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| efflandt |
| Posted: Fri Nov 16, 2007 10:55 pm Post subject: |
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Investing Manager
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It is hard to say without knowing specifics of how long you held the fund being sold, whether it was a dollar amount or all of your shares in the fund, and whether the proceeds and additional settled cash (if needed) were enough for the specified purchase.
Many funds may charge an extra fee if held for less than a minimum period. For example when I owned EUROX at Fidelity, minimum holding period for that fund was 180 days (6 months). Minimum holding for other funds might be 30 to 90 days. Or all your mutual fund trading may be restricted for a time if traded too often at less than minimum holding period.
Price for mutual funds is determined after the markets close for the day, so if selling a dollar amount and the fund went down that day (and/or a short term selling fee applies), the proceeds may be less than you expected (or may not have had enough shares to cover that dollar amount).
Not sure if it makes a difference if the fund being purchased is priced before the fund being sold. But unless trading all shares for equivalent value of shares in the same fund family, it may help to wait overnight for the sold fund to settle and confirm your cash balance before buying another. |
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| esquire415 |
| Posted: Mon Nov 19, 2007 1:31 pm Post subject: |
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Investing Manager
Joined: 02 Jun 2006
Posts: 321
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Thanks for you reply. I have held EUROX and UMEMX for more than 6 months so the holding requirement was not the problem. I see that Ameritrade will let you swap ALL shares between mutual funds (different families) but only 90% or 95% of the proceeds are used as a buffer against negative market movement. What happened is that they sold all shares of EUROX and then used 90% of the proceeds to purchase SSEMX. The difference is left as cash in my money market account.
I thought exchanging funds are that simple. It seems that it's better to just sell the fund yourself and then buy a different fund the next day when you know the total value of the previous sale. That way you can use 100% of the proceeds. Maybe i'll just do that instead, although the price of the fund may be higher the next day, that's the drawback.
Still not sure why it worked to do the exchange from EUROX to SSEMX but I got the (overselling) error when I tried a swap of UMEMX to SSEMX. They are both of different families to SSEMX. |
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