Choosing the right time to redeem mutual funds is an important decision and is based on several factors. You must carry out a detailed research on the fund’s performance and reasons for redemption. Most often, investors act based on sentiment and redeem units as a reflex action as soon they feel the fund is underperforming or the market is jittery. However, this is not a good idea. Investors should understand that even uncertain markets carry some opportunities for giving good returns.
Mutual funds are professionally managed by fund managers whose decisions are proactive and are based on the perceived market movements. But in case the fund performs poorly consistently for a longer period, you may choose to exit.
What is mutual fund redemption?
A mutual fund redemption is the process of withdrawing units of a mutual fund in order to obtain your returns from the fund. When you go for a mutual fund redemption, you will receive funds in your account almost instantly. Hence, mutual funds are very beneficial that way.
How to redeem your mutual fund units?
You can redeem your mutual funds through online or offline methods. The redemption can be done on any business day through a convenient method.
Mutual fund redemption should be done in a smart way to ensure that you get good returns. One should take note that the prices of mutual fund units are fixed only once a day. Hence, as a financially sensible investor, you should ideally request a redemption within the time set by your fund house or before the financial markets close their transactions. Your money will be redeemed at the net asset value (NAV) of your fund for that particular day. NAV includes the total of all the assets of a certain fund less the liabilities.
Mutual fund redemption with a redemption form
If you want to redeem your mutual funds physically, you will be required to get a Redemption Request form, in which you will be required to fill details such the unit holder’s name, name of mutual fund scheme, folio number, number of units to be redeemed from the scheme, plan details, etc. Once the form is filled, you will have to sign it and submit it to the designated office of the Registrar or the asset management company (AMC). You can also present it at any official point of a fund house that accepts transactions. The funds resulting from your redemption will be transferred to the fund unitholder’s registered bank account.
Online mutual fund redemption
You can also redeem your mutual funds online by visiting the official website of your mutual fund. In case you got a mutual fund by going to a third-party mutual fund web portal, you can redeem it on the portal itself.
- You will have to choose online transactions on the website.
- To access your mutual fund, you will need to log in to the website with the help of your folio number and/or your Permanent Account Number (PAN).
- Next, you will have to choose your scheme and select the number of units that you would like to redeem.
- You will then have to confirm your transaction.
Apart from redeeming your mutual funds online through your mutual fund’s website or your web portal, you may also redeem via central service providers such as Karvy, CAMS (Computer Age Management Services Pvt. Ltd.), etc.
How long will you take to receive your fund redemption amount?
When you redeem your mutual fund, you will typically receive your unit’s funds within 1 to 5 working days. If you redeem a debt-related fund or a liquid fund, you will get your money within 1 to 2 working days. On the other hand, when you redeem an equity mutual fund, you will get your amount within 4 to 5 working days.
How much money will you receive when you redeem your mutual fund units?
You can make a simple calculation to know the approximate amount of your mutual fund investments. You only have to multiply the number of units that you hold on a particular day with the NAV of that day for that scheme. This amount will depend on many other factors and they include:
- Exit load
- Securities Transaction Tax (STT)
- NAV that is applicable on your fund units, which refers to the NAV fixed for the day and time when you apply for a redemption
Charges that will need to be paid by an investor to redeem mutual fund units
As an investor, when you plan to redeem any of your mutual fund units, you will have to be prepared to pay a load or certain charges in a few situations.
If you decide to redeem a fund before you complete 1 year of the investment, you may be asked to pay an exit load of 1%. This will depend on the type of your scheme and your mutual fund company.
Exit loads are typically charged for equity mutual funds. When you redeem such a fund, the exit load will be subtracted from the NAV for the redemption of each fund unit. You may not have to pay any exit load for ultra-short-term funds or liquid funds.
How will you get your mutual fund redemption proceeds?
After you redeem unit(s) of your mutual fund, you will receive the money in your registered bank account. For this, the investor will need to provide his or her bank’s IFSC code and account number. Also, the bank and branch will require RTGS and NEFT facilities.
In case the fund house does not have sufficient bank information, then they send the money in the form of cheques to the investor.
Things to Remember:
Some of the things to remember when redeeming mutual funds are:
Applicable NAV – As the Net Asset Value (NAV) for each day is announced post the closing of the day’s trade, the time of the day when you request for redemption is crucial. However, the NAV of the day is applicable only for redemption requests that come by 3pm in a day, or else the next day’s NAV is applicable.
Bank Accounts – You must keep your bank account that is linked and registered with your AMC, active. When you redeem your mutual funds, the proceeds of the fund is sent to your bank account registered with the AMC. In case that account is inactive, you may be required to submit a cancelled cheque of your new bank account or passbook or you might also have to present a declaration from the bank with the signature of your bank manager.
Turnaround Time – When you send your redemption request, it takes around three working days for the earnings from the funds to get credited to your registered bank account. However, it depends on the time of the week you have filed for redemption.
Funds with Lock-in Period – Open ended schemes can be redeemed at any point of time, whereas some schemes like ELSS (Equity Linked Savings Scheme) cannot be redeemed up to three years from the investment date.
Charges on Redemption – Redeeming your funds might attract certain charges such as exit loads and taxes. The amount charged depends on the duration after which you have requested for redemption of funds. It is advisable to inquire about the charges before making the decision of redeeming your funds. You should approach your fund manager or financial advisor for advice before planning to exit your fund. You can also do online research to understand if you should redeem your fund units or not. You will also be able to find reliable guidelines and tips for mutual fund redemptions online. Ensure you are redeeming for an appropriate reason that will not disturb your financial plan. Some investors redeem from one scheme to invest in another in the same category, this practice is called ‘churning’, however, it is not advisable unless there is some logic to it.
When you plan to redeem your mutual fund units, you need to ensure that your scheme does not have any lock-in period. Some of these funds include Equity Linked Saving Scheme (ELSS) funds. They come with a lock-in period of 3 years. Hence, you need to understand the nature of your fund before you start to think about redeeming it. On the other hand, you can redeem open-ended funds whenever you want.
Redemption Process: There are various ways of redeeming mutual funds, however it depends on the mode of purchase:
Redemption if Funds Bought Through AMC – Investing in mutual funds through AMC is the most common mode. If you want to redeem your funds offline, you are required to submit a fully signed redemption request to the AMC’s office. A redemption form usually comprises of details such as name, plan, scheme details, folio number and number of units to be redeemed. Signature of all the holders are needed on the form. Once the form is submitted, the redemption proceeds is credited into the registered bank account.
Redemption if Funds Bought Online – When purchased online, mutual funds can redeemed through the AMC’s website or a trading account. As it is an online process, you are required to log in and select the desired fund and number of units to be redeemed and confirm.
Listen to your fund manager or financial advisor before planning to exit your fund. Ensure you are redeeming for an appropriate reason that will not disturb your financial plan. Some investors redeem from one scheme to invest in another in the same category, this practice is called ‘churning’, however it is not advisable unless there is some logic to it.
GST rate of 18% applicable for all financial services effective July 1, 2017.