- Natural market movements can sometimes freeze a fund for investors who want to sell their portion of the funds. This is not as official as other types of fund freezes and does not have an official start time or end date. Instead, investors realize that the fund's returns are falling and that losing money is a distinct possibility -- or has already happened. The investor then tries to sell all shares in the fund, but all the investors of the fund have already tried to do the same thing. There is no longer enough demand for the fund on the market, so the investor cannot find any willing buyers. This leads to a natural freeze of the fund.
- In other cases, the managing company in charge of the fund will lock it down, freezing all investors out. Investors cannot buy, sell or perform any other action regarding the part of the fund they own. The managing company typically locks the fund down in this way in the case of very bad news. Bad news can mean a fund run, where all investors try to sell their shares and collapse the fund entirely. To prevent this, the manager freezes the fund until more details emerge and a plan of action can be followed.
- Rarely, a fund may also be frozen externally, without any involvement from the fund manager. This tends to occur only during a government investigation. The Internal Revenue Service, when investigating fraud or other illegal accounting practices, can freeze the account so no changes can be made during the audit. The Securities and Exchange Commission may also freeze a fund when waiting for further news regarding the actions of a company.
- In most cases, a deliberate freeze is designed to protect the fund. If investors had the ability to act, they would choose options that would be disastrous to the fund or, in the case of investigation, would stop government agencies from getting a clear picture of previous fund activity. A freeze is typically lifted after several days or weeks so trading can go on.
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