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What ceiling does the SEC place on a mutual fund redemption fee?
A1% of the amount redeemed
B5% of the amount redeemed
CThere is no stated ceiling
D2% of the amount redeemed
Answer & Solution
Correct answer: D. 2% of the amount redeemed
1. A redemption fee is charged when an investor sells shares within a certain time of buying them.
2. It is paid into fund assets, to defray the costs the redemption imposes on remaining investors.
3. The SEC limits redemption fees to 2%.
4. A back-end sales load is a different charge, typically paid to a broker and not subject to that 2% limit.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Fee Table: Shareholder Fees for mutual funds_
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