Why doesn the TSP impose redemption fees instead of trading restrictions?
In deciding what action to take, the TSP conducted a study of the best practices of large mutual fund families, which revealed that two methods are used to control frequent trading: (1) fees and (2) trading restrictions. T. Rowe Price imposes fees on redemptions; it manages an international index fund similar to the TSP’s I Fund and charges investors a fee of 2% for any redemptions made within 90 days of purchase. Fidelity limits international fund activity to one round trip (a purchase and sale) within 30 days, with a maximum of two round trips in any 90-day period. Vanguard, the largest manager of index funds, does not allow any of its funds to be repurchased within 60 days after a sale. The TSP determined that imposing a 2% fee on redemptions within 90 days would harm the vast majority of participants who are not frequently trading. We wanted to give participants the opportunity to rebalance their portfolios more often than every 90 days. For example, a participant purchases some sh
