There comes a time in the life of every mutual fund when the owner says, “you’re fired.” But whether you’re moving out the fund because of poor performance, to pay bills, or because you’ve finally reached your goal, there are hurdles to clear to avoid excessive taxes and possible termination penalties. By following a few simple steps, you’ll sell your mutual fund and sleep soundly, because you didn’t overpay.
Research back-end penalties and sales charges. Some funds charge a contingent-deferred sales charge when you sell. Ask your broker about this fee, and also about account termination fees if you’re completely closing up shop. If you’re only looking for a new fund, many firms charge no penalties if you buy a new fund within the same family of investments.
Review your tax situation. Selling a mutual fund can create a mountain of tax headaches if you have a gain, and create a windfall of tax opportunities if you have a loss. Review your tax situation this year and next, if you’re selling near year-end. Would it make sense to hold on until January to take the tax, or receive the break, in the following year? Check with your fund company before you sell to see how large your tax liability or tax loss will be.
Call your fund provider or broker. Some firms will allow you to terminate your fund positions online. If not, dial the number on your account statement to sell your fund. You’ll need the name of the fund, your account number and name, plus any security information you used to set up the account.
Specify how you’d like the funds to arrive. Be prepared for fees if you need money fast; firms charge extra to have funds wired or express-mailed to you. The usual method of payment is via regular mail. According to the Securities and Exchange Commission, a mutual fund company must generally pay fund proceeds within seven days of the request unless the New York Stock Exchange is closed, holidays occur or emergency situations arise.
Keep records of the transaction for tax purposes. Once you close an account, many mutual fund companies no longer keep a record of your cost basis. You’ll need the date you purchased your fund, the date you sold, and the amount you paid for your tax return if your fund is a non-IRA account. Print out all of this information from the fund’s online site, or ask the mutual fund representative for this information when you close the fund.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.