What is liquidity risk in a mutual fund context?

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Multiple Choice

What is liquidity risk in a mutual fund context?

Liquidity risk in a mutual fund is the risk you cannot redeem quickly or with minimal price impact. In practice, a fund needs to raise cash to meet redemption requests by selling its holdings. If many investors redeem at once or the fund owns assets that aren’t easy to sell, the manager may have to dump securities at inopportune prices, which can slow redemptions and/or reduce the value received by remaining investors. This idea is different from performance risk (how the fund might perform in rising markets), currency risk (FX movements), or fee risk (rising expenses).

Liquidity risk in a mutual fund is the risk you cannot redeem quickly or with minimal price impact. In practice, a fund needs to raise cash to meet redemption requests by selling its holdings. If many investors redeem at once or the fund owns assets that aren’t easy to sell, the manager may have to dump securities at inopportune prices, which can slow redemptions and/or reduce the value received by remaining investors. This idea is different from performance risk (how the fund might perform in rising markets), currency risk (FX movements), or fee risk (rising expenses).

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