Mutual Fund Redemption: What Is It And How To Redeem Fund Units
Redeeming Your Investments From Mutual Funds & How To Redeem Your Investments From Mutual Funds
Choosing the right time to withdraw your mutual fund units is an important decision. In this article, we are explaining what it means by redeeming your mutual fund units and how can you do the same without any hassle.
Mutual Fund Redemption - What Does It Mean?
A mutual fund redemption is a process of withdrawing your units from a mutual fund scheme to obtain your returns from the fund. If there is an exit load, you have to pay it while redeeming your units. When you choose to redeem your mutual fund units, you will receive funds in your bank account quickly.
However, you might have to pay taxes on your capital gains, depending on the type of fund and the period of holding. So, it is a good idea for investors to consider all the expenses they would have to incur when they choose to redeem their mutual fund units.
When Is The Right Time To Redeem Your Mutual Funds?
The right time to redeem your mutual funds would depend on different factors. If your investment in a mutual fund has helped you achieve your financial goal, you can consider withdrawing your funds. There are various other situations where one can consider withdrawing funds from mutual fund schemes. We have written a detailed blog about it. Please go and check it out to get more information about the right time to sell your mutual fund.
How Can You Redeem Your Mutual Funds?
The one thing you should note here is that the prices of mutual fund units are fixed only once a day. So, you should ideally request a redemption within the time set by your fund house or before the financial markets close their transactions. When you give a redemption request, your money will be redeemed at the net asset value (NAV) of your fund for that particular day.
Once you have decided to redeem your mutual fund units, you can redeem them using any of the below methods.
Redeeming Your Mutual Fund Units With A Form
If you wish to redeem your mutual funds physically, you will have to get a Redemption Request Form. You will have to fill all the details in the form, including the unit holder's name, name of mutual fund scheme, folio number, number of units to be redeemed from the mutual fund 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 the form 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.
Redeem Through An Agent Or Distributor
You can redeem your mutual funds, which are bought from several AMCs, from central services such as CAMS and Karvy. All you need to do is to download a redemption form and submit the filled and signed form at the nearest CAMS office.
Redeeming Through An AMC Portal
If you have made investments in a mutual fund scheme directly via the AMC that offers that scheme, you can redeem your investments using AMC's online portal. Through the AMC, you can choose to sell some units or all, as per your needs.
Redeeming Through A Trading Or Demat Account
If you had invested in mutual funds via a Demat or trading account, you will have to redeem your units through the same account. When the process is completed, an electronic payout will be made for your redemption. The amount will be credited to the same bank account that is registered with the Demat account.
How Much Money Will You Receive When You Redeem Your Mutual Fund Investments?
When you withdraw your investments from mutual funds, you can do a simple calculation to know the approximate amount you will be receiving in your bank account.
Firstly, you 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 several other factors including,
- Exit Load
- Securities Transaction Tax (STT)
- NAV that is applicable to your fund units - This refers to the NAV fixed for the day and time when you apply for redemption
When Will You Receive Your Money After You Give The Redemption Request?
The time that it takes to receive your redemption amount will depend on the mode in which you give your redemption request. Typically, if you redeem your investments through the offline mode, your redemption amount will take longer to reach your bank account than if you do it via the online mode. Usually, you will receive your unit's funds within 1 to 5 working days.
Here’s how long it will take for you to receive your redemption amount for various types of mutual funds.
- For a debt-related fund or a liquid fund, you will receive your funds within 1 to 2 working days
- For equity mutual funds, you will receive your amount within 4 to 5 working days
What Are The Charges That You Have To Pay While Redeeming Mutual Fund Units?
When you redeem your mutual fund units, you will have to pay a load or a certain charge in a few situations. If you redeem a fund before you complete 1 year of the investment, you might have to pay an exit load of 1%. This will depend on the type of fund and mutual fund company.
Exit loads are typically charged for equity mutual funds. When you redeem from equity mutual funds, 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.
In The End…
Redeeming your mutual fund units is easy but it is important that you have a rational reason for why you are redeeming your investments. It is also crucial that you don’t redeem your investments whenever you panic during a market turmoil.
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