Can you Buy and Sell a Mutual Fund on the Same Day?

We get asked about mutual funds almost all the time. In fact, we have covered them frequently on this website. We normally get questions about mutual funds from people who are looking to invest their money long-term. However, there are also those who are looking for short-term investments and want to know whether or not they can buy and sell a mutual fund on the same day.

The short answer to that question is no, it is almost impossible to buy and sell shares in a mutual fund on the same day. The value of a share or unit within a mutual fund does not fluctuate throughout the day. Therefore, all units are sold at the end of the day or at least when the market closes.

When it comes to money you want to know as much about the risks that you are going to take as possible. Investing in anything is a risk and that is why we decided that we are going to go in-depth into buying and selling shares short-term in mutual funds. So, for everything you need to know I suggest that you keep reading this article.

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Understanding What Mutual Funds Are

To understand this topic better, you need to understand mutual funds. Now, I know a lot of people will have a brief idea of what mutual funds are however the more you know about them, the better your decisions in terms of investing will be.

When you invest in a mutual fund, you are not trading on the stock market. Instead, you are placing your investments in the hands of an experienced caretaker. That caretaker is known as the fund manager. The fund manager is in charge of meeting the objectives, goals, and following the guidelines set out by the fund owners.

A fund manager is somebody who is highly educated and has a wealth of experience when it comes to market research, predictions, forecasting, and much more. In fact, some fund managers become almost like celebrities within investing.

A mutual fund will have investments in various different types of stocks. They will also have investments in property. Basically, they have an extremely diverse portfolio. The fund is funded by investors such as yourself. The money is pooled together and invested according to the fund manager.

You do not actually own any of the stock, properties, or other investments that the fund owns. Instead, you own “Units”. You can redeem the units by selling them back to the fund. These units can increase or decrease in value depending on the health of the portfolio of the fund.

Can You Buy Mutual Funds At Any Time?

We have already established that you cannot buy and sell mutual funds on the same day. The reason for this is when you buy units in a mutual fund, you are only given that unit at the end of the market day. Some mutual funds actually have a minimum investment time for new investors, so your money is tied up.

Therefore, it would be almost impossible to sell that mutual fund or unit on the same day. So, you are going to have to hold onto it at least until the market opens on the next day. However, there are a lot of things that you need to consider if you plan on doing this.

That leads us into our next section.

Can You Sell Mutual Funds At Any Time?

When you sell a mutual fund unit back to the fund you need to think of it as redeeming your units. You hand over the mutual fund and they give you your money according to its current value. 

A mutual fund is required, by law, to allow you to redeem your fund at any given time. Once you redeem your unit, the fund has seven days to repay you and they will often take up to these seven days. So, in most cases, you will not see your money for at least 8 days after investing in a mutual fund.

So, mutual fund managers have found a way to prevent people from selling their funds too early. This is because it makes the fund manager’s life very difficult especially if a lot of investors do this with large amounts of funds.

There could be a clause that if you sell your units before a certain period of time, they can implement fines and penalties. It could be so severe that you end up losing money especially if you hold on to the unit for a short amount of time. Well, at least short enough that its value does not increase.

Mutual Fund Prices Do Not Fluctuate During The Day

So, this is what it all boils down to. We already spoke about the fact that you can receive your units of a mutual fund at the end of the day. The reason for this is because the prices do not fluctuate during the day and therefore if a mutual fund sold units to you during this time they could end up undervaluing the price of their shares.

It is also for this reason why it is almost impossible to buy and sell units within a mutual fund on the same day.

If there is anything that you walk away from this article with, I want it to be this section. This is because I believe that understanding this will help you make better decisions in how you invest in mutual funds.

How Long Should You Hold A Mutual Fund For?

Mutual funds are seen as long-term investments. They are not the same as stocks. In fact, they are not even similar. Now that we have that out of the way, how long should you hold onto as a mutual fund for? Let’s take a look.

I would say that you should hold on to a mutual fund for at least one year. However, there are some factors that could come into play that should warrant you to sell your units. Remember, you want to protect your investment as much as possible.

To protect your money you need to figure out how risky certain funds are and which ones fit inline with your investment goals.

The most important factor is if the fund changes fund managers. You see, you can look at a fund manager’s track record within a certain fund. This should obviously be done before buying into any mutual fund or making any investment. So, you would have a good idea of what direction the fund is going to go.

Even if an experienced fund manager comes in, you still don’t know how he is going to handle this specific job. Remember, you have placed your money in the care of someone who you trust. So, when they change managers you should consider selling that mutual fund.

Once the new manager has established himself and has managed the fund for a while, you could reinvest if he is doing a good job.

Another thing you need to consider is taxation. You could be liable to pay Capital Gains tax if your units have increased in value. The more significant this increase is, the more you will be subject to pay. Please find more information about this in this article from the IRS. For more information about Capital Gains in the USA, please read this article.

For more information about Capital Gains tax in the UK, please read this article from the UK government. If you live outside of these countries, please check with your local tax authority.

Final Thoughts

Well, that brings us to the end of that article. Hopefully, you have enough information so that you can start doing research on how you plan to invest your money within mutual funds. The fact that you are reading this article in the first place means that you are already studying up before making your investments and I’m happy with that.

If I was to give my opinion based on experience regarding buying and selling mutual funds, I would not look at mutual funds as a way to make money quickly even though it can happen. It is always best to go into it with a long-term mentality and hold onto your shares for as long as you can while claiming those dividends. Sell when you feel that you either need the money or that the value of your units has increased significantly.

If you want a more flexible investment for the short term, ETFs might be a better fit for you.

Chris Race

I am an accountant from the U.K. specialising in Management Accounting, Personal & Business Tax, Financial Analysis, and Wealth Management. My passion for learning is what lead me to creating this blog. Stock market investing has always been a interest of mine, and since I was 18 years old... This interest has become a source of income for me and my family.

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