It's literally mind boggling, lol. It's such an easy concept to understand. When I first heard Ace say you couldn't liquidate a mutual fund, I had stop and think for couple seconds. My mind was blown... hahaha. It's no surprise the rest of these conservatives agree. They hate education for a reason. But it's absolutely hilarious to watch. They don't understand the difference between liquidity and liquidate.
So since the troll sputtered so much BS, let me repeat.
When you "Liquidate assets" you convert an illiquid asset into a liquid asset. Note: the dumb little kid disputes this.
Liquid assets include most stocks, money market instruments and government bonds.
Therefore you can not "liquidate" your mutual fund.
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Just classic comedy!! Keep in mind this is a super wealthy, big time lawyer saying this... hahahaha. Grown ups say the darnedest things!
No one is distorting anything. There is only one definition of the word when talking about liquidating a mutual fund. Let me ask you the qusetion Zit,
Can you liquidate a mutual fund? Ace says you can't, so do you agree with him because I haven't seen you call him an ass or an idiot yet. Simple yes or no answer. Can you liquidate a mutual fund?
If you liquidate your mutual fund at a gain, you will have to pay capital gains tax on that profit. If you intend to sell your fund to pay off expenses, set aside some of the sales proceeds to pay the tax bill that will be awaiting you when you next file your taxes. You may also owe capital gains taxes even if you sell your mutual fund at a loss. All funds are required by law to distribute any capital gains they earn to shareholders, and in some situations even a fund that is down in value can make a taxable capital gains distribution to shareholders. You will receive a Form 1099 at the end of the year from your fund company listing any capital gains distributions.
after a quick google search lol
If you want to liquidate your mutual fund simply because you don't like the fund anymore, an exchange may be a better option for you. In most fund companies, you can exchange your fund into any other fund the company offers for no sales charge, even if you would normally have to pay a sales charge if you sold the fund. For example, you can exchange B shares of Fund ABC into B shares of Fund XYZ at the same company and not incur any back-end sales charges from selling Fund ABC. You will still be liable for any tax consequences on the fund exchange, just as if you sold the initial fund.
Mutual fund liquidations, also referred to as "full closures," are never good news. A liquidation involves the sale of all of a fund's assets and the distribution of the proceeds to the fund shareholders. At best, it means shareholders are forced to sell at a time not of their choosing. At worst, it means shareholders suffer a loss and pay capital gains taxes too.
The Thrill Is Gone
Liquidations often occur after a fund has dropped in value. This forces investors who bought when the fund was more expensive to sell at a loss. Worse yet, the fund may have embedded capital gains, which can have an immediate impact for investors holding the fund in a taxable account. This occurs when a fund doesn't sell a stock that has risen in value since it was purchased.
For investors, this means that although the stock may have been purchased by the fund before some investors bought in, tax liability for those gains is not passed on to investors until the stock is sold and the gains are realized and paid into current shareholders' accounts. This occurs because of the "mutual" ownership aspect of mutual funds. Therefore, when the fund is liquidated, the investor not only sells the fund for less than the purchase price, but also still pays tax on capital gains that he or she did not get to benefit from. This can be particularly damaging to investors holding the fund in taxable accounts, as the taxes cannot be deferred the way they could be in a tax-deferred investment, such as a 401(k) plan.
Let the Good Times Roll
Funds are liquidated for a variety of reasons, with poor performance ranking as one of the primary causes. Poor performance reduces asset flows, as investors choose not to buy into a fund that isn't doing well. It also brings down the mutual fund management firm's track record. If the firm has five funds and four of them are doing well, closing the poor performer gives the firm a track record based on four successful funds.
Poor performance also results in bad publicity, which can lead to large redemptions. As the asset base falls, the costs of doing business increase. Funds operate on economies of scale, with bigger being better from a cost-savings perspective. As costs increase, it can become unprofitable to operate a fund.
If investors are losing money, the fund is likely to stay open as long as the fund can be operated profitably, but when the fund company starts to feel the heat, the fund is terminated. After all, fund companies are in business to make a profit.
The "How Long?" Blues
Fund terminations are common, particularly among new funds. If a fund doesn't gain popularity and grow during its first three years, it is likely to close. Several hundred funds closed nearly every year during the late 1990s and the early 2000s. Niche funds are particularly vulnerable, as they are often invested in fads, or focused on such a small aspect of an industry that there is a risk the concept will never catch on with investors.
Signs that a fund is a candidate for closure include a big drop in performance that is sustained without recovery. A poor track record over several years is another warning. Because long-term poor performance simply isn't appealing to investors, heavy redemptions are another possible indicator.
When You're Down and Out
If you've got the feeling that your fund is going away, what should you do? There are different strategies for different funds. If you're invested in an open-end mutual fund and the signs of the end are coming, it's time to head for the exit as fast as you can. When investors all want to sell a particular fund, the selling pressure tends to lower the fund's price. Getting out sooner rather than later can help you get a better price for your shares and salvage as much of your investment as possible.
If you are invested in a closed-end fund, look at the underlying assets. If the fund is selling at a premium, sell to maximize your payout. If the fund is trading a discount, hold because you will get paid on the full value of the assets when the fund liquidates them.
The Bottom Line
Mutual fund closures are not extraordinary events. They happen all the time as part of the fund industry's natural business cycle. You can minimize your exposure to these occurrences by investing in funds with long track records of success and carefully monitoring your exposure to niche products. When a closure occurs, it's not the end of the world. Take appropriate action, learn from the experience and redeploy your assets to keep your long-term investments goals on track.
The Thrill Is Gone
Liquidations often occur after a fund has dropped in value. This forces investors who bought when the fund was more expensive to sell at a loss. Worse yet, the fund may have embedded capital gains, which can have an immediate impact for investors holding the fund in a taxable account. This occurs when a fund doesn't sell a stock that has risen in value since it was purchased.
For investors, this means that although the stock may have been purchased by the fund before some investors bought in, tax liability for those gains is not passed on to investors until the stock is sold and the gains are realized and paid into current shareholders' accounts. This occurs because of the "mutual" ownership aspect of mutual funds. Therefore, when the fund is liquidated, the investor not only sells the fund for less than the purchase price, but also still pays tax on capital gains that he or she did not get to benefit from. This can be particularly damaging to investors holding the fund in taxable accounts, as the taxes cannot be deferred the way they could be in a tax-deferred investment, such as a 401(k) plan.
Let the Good Times Roll
Funds are liquidated for a variety of reasons, with poor performance ranking as one of the primary causes. Poor performance reduces asset flows, as investors choose not to buy into a fund that isn't doing well. It also brings down the mutual fund management firm's track record. If the firm has five funds and four of them are doing well, closing the poor performer gives the firm a track record based on four successful funds.
Poor performance also results in bad publicity, which can lead to large redemptions. As the asset base falls, the costs of doing business increase. Funds operate on economies of scale, with bigger being better from a cost-savings perspective. As costs increase, it can become unprofitable to operate a fund.
If investors are losing money, the fund is likely to stay open as long as the fund can be operated profitably, but when the fund company starts to feel the heat, the fund is terminated. After all, fund companies are in business to make a profit.
The "How Long?" Blues
Fund terminations are common, particularly among new funds. If a fund doesn't gain popularity and grow during its first three years, it is likely to close. Several hundred funds closed nearly every year during the late 1990s and the early 2000s. Niche funds are particularly vulnerable, as they are often invested in fads, or focused on such a small aspect of an industry that there is a risk the concept will never catch on with investors.
Signs that a fund is a candidate for closure include a big drop in performance that is sustained without recovery. A poor track record over several years is another warning. Because long-term poor performance simply isn't appealing to investors, heavy redemptions are another possible indicator.
When You're Down and Out
If you've got the feeling that your fund is going away, what should you do? There are different strategies for different funds. If you're invested in an open-end mutual fund and the signs of the end are coming, it's time to head for the exit as fast as you can. When investors all want to sell a particular fund, the selling pressure tends to lower the fund's price. Getting out sooner rather than later can help you get a better price for your shares and salvage as much of your investment as possible.
If you are invested in a closed-end fund, look at the underlying assets. If the fund is selling at a premium, sell to maximize your payout. If the fund is trading a discount, hold because you will get paid on the full value of the assets when the fund liquidates them.
The Bottom Line
Mutual fund closures are not extraordinary events. They happen all the time as part of the fund industry's natural business cycle. You can minimize your exposure to these occurrences by investing in funds with long track records of success and carefully monitoring your exposure to niche products. When a closure occurs, it's not the end of the world. Take appropriate action, learn from the experience and redeploy your assets to keep your long-term investments goals on track.
