Why doesn’t 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 two percent 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. In developing its recommendation, the TSP chose not to pursue redemption fees because it is impossible to correctly assign the exact costs to those who are making interfund transfers. Additionally, imposing a percentage fee would deny our participants the ability to go to the safe harbor of
