What may happen if a client redeems their investment before the minimum holding period?

When a client redeems their investment in a Unit Investment Trust Fund (UITF) before the minimum holding period, it is common for an early redemption fee to be charged. This fee serves to discourage investors from withdrawing their funds prematurely, as UITFs are designed to be long-term investment vehicles. The rationale behind this fee is that it helps to maintain the fund's stability and liquidity while compensating for any additional costs incurred by the fund managers as a result of the early redemption.

This practice promotes a commitment to holding the investment for the required period, which can lead to better overall returns for investors. Additionally, the existence of an early redemption fee is often outlined in the UITF's trust agreement, making it a standard policy within the industry to protect the interests of both the fund and its investors.