And that benefits remaining shareholders by modestly increasing the value of their shares. The real benefit, though, is discouraging jumpy investors from investing in the fund in the first place. People who throw money into a fund only to pull it out soon after can wreak havoc on a fund's performance. Those investors tend to redeem their shares when times turn bad. Massive redemptions during those periods can force managers to sell securities when they would rather ride out the turbulence, often with ugly tax consequences for remaining shareholders.
Dedicated investors suffer.
Those funds often have fewer assets than more-diversified funds, too, which means outflows can be especially damaging. That's why all of Fidelity's and Vanguard's sector funds charge exit fees, and Putnam added fees to its emerging markets and Asia Pacific funds. Find out if a specific fund charges a redemption fee in the Nuts and Bolts section of its Morningstar Quicktake Report. You'll find the redemption fee near the top, in the Fees and Expenses section. To find out after what period the fee phases out, contact the fund company at the phone number you'll find a little further down, in the Purchase Information section.