Opinion – Marcia Dessen: Can an investor who redeems a fund continue to take risks?

Teresa, tired of losing money in an investment fund for 18 months, decided to redeem and invest in another fund more suited to her profile, with less volatility and a better risk-return ratio.

What she didn’t expect was to continue taking the risk she wanted to eliminate even after she had asked for the fund’s ransom. And she was unlucky, the quota value devalued a lot while she waited to put an end to this bad experience.

Accustomed to the standard procedure of fixed income funds, whose redemption is processed on the same day or the day after the request, she did not know that the fund would only convert shares 30 days after the redemption request.

Each fund defines rules for converting cash into shares at the time of investing and to converting shares into cash on redemption. Some, with a lot of freedom of well-expanded deadlines.

In the application, the conversion is carried out on the same day (D+0) or on the following business day (D+1) when the investor joins, as determined by the Securities and Exchange Commission. Upon redemption, the CVM does not determine a maximum period for the conversion of shares, allowing each fund to establish its own rules, as long as they are clearly informed in the Essential Information Document, also known as the product sheet. This document contains all the information that the investor must know and accept before joining the fund.

The conversion rule applicable to the redemption is doubly important as it affects the risk on the invested capital and liquidity, the time that the investor will have to wait to receive the redemption payment.

This is a common practice in multimarket and equity funds, especially the more sophisticated ones with more complex investment strategies. The most common conversion period is around 30 or 60 days, but there are funds that ask for up to 180 days to convert shares upon redemption, imposing a long period of risk on the investor and a long wait to receive the capital redeemed.

Some funds establish an early redemption fee, or exit fee, if the shareholder does not want or cannot wait for the period established in the fund’s regulations, normally between 5% and 10% of the redeemed capital. The investor accelerates the receipt of the redemption, but leaves good money on the table.

When the fund’s regulations do not provide for the possibility of early exit, the shareholder must wait for the defined period. Remember that an investment fund is a condominium for investors and that the rules of the game apply to everyone, without distinction.

Teresa learned, with shock and loss, that the investor’s risk does not end on the date of the redemption request, but on the conversion date of the shares, when the redemption amount will be defined, paid within five days after the conversion date.

So keep an eye on the fund blade you invest in or intend to invest in. Check that the rules are compatible with your investment objective, risk profile, liquidity need.

Accept the conditions and join the fund only after knowing and agreeing to them. Recent funds, with no performance history, high cost funds and those that impose restrictions on quick access to invested capital deserve extra attention. Assess whether the long-term return outweighs the risk and lower liquidity of the investment.