Why a fund cannot simply let you out
A fund is a pool. When you leave, the fund does not hand you a slice of its positions; it hands you money, which means positions must be sold to raise it, and the cost of that selling falls on the investors who stay.
If exits happened continuously and unpredictably, a manager would have to hold a permanent cash buffer against the possibility — cash that earns nothing and drags on everyone's return — and would still be forced into selling at bad moments. Dealing dates exist to make redemptions predictable, so that raising cash can be planned rather than improvised. The restriction on you is what protects the investors who remain, and one day you will be one of them.
Forward pricing: you commit before you know the price
This is the part that surprises people most. When you place a redemption instruction, you do not know what you will get. The price is the net asset value struck on the dealing date, which is in the future. You are agreeing to sell at a price that has not been calculated yet.
This is deliberate and it is protective. If you could redeem at a known, already-published value, you could act on information the price did not yet reflect — buying in ahead of a rise the fund had already earned, or getting out ahead of a fall it had already suffered, at the expense of everyone else in the pool. Forward pricing closes that door. The cost is that you accept the market risk between your decision and the valuation.
What a notice period actually costs
A notice period — thirty days, sixty, ninety — is the time between your instruction and the dealing date it applies to. During that window your money is still invested and still exposed. You have made the decision to leave, and you carry the market until you actually do.
Work through the timing rather than reading the number. With monthly dealing and thirty days' notice, an instruction that misses this month's deadline by a day may not deal until the month after — so the real distance between "I want out" and "the money arrives" can be considerably longer than "thirty days" suggests. Add the settlement period after the dealing date, which is usually several more business days, and the honest question is not what the notice period is but what is the longest it could take, from a decision on the worst possible day of the month to money in my account. That is the number worth knowing, and it is derivable from the fund's own documents.
Anti-dilution: who pays the cost of your exit
Selling positions to fund a redemption costs money — spreads, commissions, market impact. Left alone, that cost is borne by the fund, which means by the investors who did not redeem. They pay for your exit.
A well-designed fund charges it to the person who caused it, through an anti-dilution levy or a swing in the dealing price. The detail worth checking is where that money goes. A levy that is retained by the fund compensates the remaining investors, which is the point. A charge that goes to the manager is a fee wearing a protective name. The two look almost identical in a fee table and mean quite different things.
Gates and suspensions
Two mechanisms exist for the situation where too many people want out at once, and both should be read before you invest rather than discovered during a crisis.
A gate caps total redemptions at a dealing date — commonly a percentage of the fund. Beyond that, requests are scaled back and the remainder carried to the next date. You get part of your money and wait for the rest.
A suspension stops dealing altogether. It is the more serious instrument, generally reserved for circumstances where the fund cannot reliably value its assets — because if you cannot strike a fair price, dealing at any price treats somebody unfairly.
Both exist to protect the pool from a disorderly exit, and both mean you cannot get your money when you want it. What matters is the conditions: who may invoke them, on what grounds, for how long, and what must be disclosed to investors while they are in force. Vague drafting here is a genuine warning sign.
Liquidity should match the assets, not the marketing
The single most useful test is whether a fund's dealing terms are consistent with what it actually holds. A fund in deeply liquid instruments — major currencies, gold, large-cap equity — can reasonably offer frequent dealing. A fund in property, private companies or thinly traded credit cannot, whatever it offers.
Historically, the damage has come from the mismatch rather than from illiquidity itself. Daily dealing on assets that take months to sell is a promise that works right up until enough people ask at the same time. An investor is generally safer with a fund that is candid about being monthly or quarterly than with one that promises more than its holdings can support.
The questions worth asking
How often does the fund deal, and what is the cut-off for an instruction to be included? What is the notice period, and what is the longest realistic time from decision to money received? Is the price forward or historic? Is there an anti-dilution charge, and does it go to the fund or to the manager? What gating and suspension powers exist, who exercises them, and on what conditions? And are the dealing terms consistent with what the fund actually invests in?
A return you cannot reach when you need it is not the same as a return. Liquidity is not a footnote to performance; it is part of the product.
Related reading: Understanding Drawdown, on surviving the periods when you most want to leave, and High-Water Marks and Performance Fees, on what crystallises when you redeem.
Risk Disclaimer
This article is for educational purposes only and does not constitute investment advice. Trading foreign exchange and metals involves substantial risk of loss and is not suitable for every investor. Past results are not indicative of future performance.