In the face of rising redemption rates, the mutual fund industry is worried about shortened holding periods. Yet fund researchers say fund holding patterns haven't budged from historical norms.

A few years ago, the annual redemption rate was 10 percent, equaling a 10-year holding period, according to Jack Brennan, CEO of the Vanguard Group and chairman of the Investment Company Institute (ICI). The redemption rate now is close to 40 percent, bringing the average holding period down to about 2.5 years, he says.

"We're quite concerned," says a Vanguard Group spokesperson. Vanguard normally enjoys double the average industry holding period, but it has seen that period decline, the spokesperson says.

Average annual redemption rates are running at 35 percent to 40 percent, according to Financial Research Corp. in Boston and Strategic Insight in New York.

But translating redemption rates into holding periods is not as simple as it appears. Financial Research, Strategic Insight, Morningstar and the ICI all say they don't provide holding period numbers and are unaware of who does.

Why no figures?

"To calculate holding period as the inverse of redemption rate is totally wrong," says Avi Nachmani, head of Strategic Insight (see "'Average Holding Period' Meaningless," below).

Nachmani says the fund industry's annual redemption rate hasn't changed much from its historical range of 30 percent to 40 percent. In a report this past April, Nachmani criticized the fund industry's hand-wringing over the holding period problem, saying the "alarmist views of equity redemption trends [are] perplexing and misleading."

The average holding period for a mutual fund is an invalid statistic, says Avi Nachmani, head of Strategic Insight, a New York-based fund research firm. He offers the following example:

Fund XYZ has four types of customers, each type holding 25 percent of assets. Investors in group A turn over only once every 20 years. Group B turns over once every 10 years. Group C turns over once every five years. Group D turns over once a year.

Most customers in this fund would be considered buy-and-hold investors, Nachmani notes. Yet the fund's average redemption rate would be 33.75 percent annually.

That figure translates into an "average holding period" of about three years, when in fact, three-quarters of the fund's investors hold their shares five years or more.--P.S.F.