Liquidating a mutual fund

Securities that are not widely traded may be hard to sell, especially when a fund dumps its often large holdings at one time.

Unless the fund company arranges the asset sales in an orderly manner, shareholders may incur investment losses from a fund liquidation.

A variety of reasons may induce the investor to do this, but the most common one is simply a belief that the security price will fall.

On Friday, September 9, 2011 the fund reorganizations listed above took place.

Liquidating a position may simply mean selling stock or bonds; the seller in this case receives the cash.

A poorly performing fund can become inoperable sometimes as a result of increased shareholder redemption.

Liquidation often has a negative connotation for this reason. To sell all the stock or debt securities of a particular type.

For example, a portfolio manager might decide to liquidate a position in a stock by selling all the shares of that stock held in the portfolio.

Merging a fund with another fund that has a different investment focus may negatively affect shareholders of the fund being liquidated.

For example, a new, large-cap fund may not fit the needs of the shareholders whose liquidated fund was originally small-cap oriented.

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If a fund is sold outright, the fund distributes the proceeds to its fund shareholders.

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