Gate provision

A clause allowing a fund to limit or suspend withdrawals when too many investors ask to leave at once.

Example

A fund that caps total quarterly redemptions at a share of its assets, so requests beyond that are deferred.

Important

It binds in exactly the conditions that create your own need for cash, so the stated redemption right and the available one differ most at the worst possible moment.

Related terms

• Redemption — Withdrawing money from a fund by selling units back to the vehicle itself, rather than to another investor.
• Lock-up period — A contractual period during which you cannot withdraw money from a fund or sell a holding, however much you might want to.
• Forced selling — Selling because you have to rather than because you chose to - triggered by a lender, a redemption request, or an unrelated need for cash.

Lessons that explain it

• Defaults cluster, exits close, and interest is often taxed as income — The key risks are defaults rising together in a downturn, being unable to exit, and intermediary failure. Costs include layered fees, and interest is frequently taxed less favourably than gains. (12 min)
• Lock-ups: what you actually give up when you cannot sell — A lock-up is a promise you make about your own future, and you make it without knowing what your future will need. Here is what is on the other side of that promise. (10 min)

All 578 terms in the Investing glossary