MUTUAL FUND REDEMPTION
Mutual fund redemption is a process in which you as an investor sell your shares back to the fund. Redemption process is pretty simple and easy depending upon the type of mutual fund you hold. The amount will be credited back to your account/ ledger after you submit the redemption request to the fund house. In short, mutual fund redemption is a process of withdrawing units’ in order to obtain returns from the fund.
With hundreds of funds, it becomes difficult for investors to decide upon which MF to choose and even more difficult while tracking the performance and accordingly deciding when and how to sell the mutual fund units.
A basic question may come to your mind i.e. what is mutual fund redemption time?
Investors must keep all the factors in mind while choosing a fund as different funds have different rules and guidelines for entering, exiting and redemption.
Choosing right time to redeem your mutual fund is based on several factors and it is a very important decision, therefore a detailed research and knowledge is required on the performance of funds and its reasons for redemption.
Mutual fund redemption time also depends on investors’ financial goals, like if an investor invests in mutual fund for long term (10-15 years) in order to purchase a house, marriage, etc. or if an investor invests for short term (less than one year) in order to purchase car, bike, etc. then, as per the needs, the investors may redeem their mutual fund.
Also, when the fund is underperforming irrespective of the state of the market the investor may redeem his/her fund.
As mutual fund are priced only once per day therefore the redemption of units to a mutual fund company must occur within seven days of receiving a request from investor.
Reasons why investors redeem mutual funds:
- If AMC does not deliver as promised, investor can redeem the fund.
- Since every investor invests with a goal to achieve and when the performance of their investments is not helping them to achieve their goals, the investors may think to redeem the fund.
- When the schemes are not performing well from sometime then you might consider redemption of funds.
- Also, due to unexpected financial crisis investors may redeem funds therefore it is advisable to invest some amount in open ended mutual funds as it ensures liquidity.
- When the market seems good, investors must not sell just because the market is touching highs. Investors must have faith in their fund managers to book profits and cut losses when they see tough situations, then redeeming shares might be a good option.
Mutual fund redemption procedure
Below are the following ways through which mutual funds can be redeemed:
- Directly through Asset Management Companies (AMC)
- Through Demat and Trading account
- Offline through an agent or a distributor
- Through Registrar and Transfer Agency
When investors redeem their mutual fund they will receive their amount within 1-5 working days according to the number of units they sell. In case, a debt related fund or a liquid fund is redeemed the money will be credited within 1-2 working days. Whereas, in case of equity mutual fund the amount is credited within 4-5 working days.
You can simply calculate to know the approximate value of your investments. You just have to take the number of units that you are holding on a particular day multiply it with the NAV of that day for that scheme. The amount will appear depending on several factors like:
- Exit load
- Securities Transaction Tax (STT)
How to redeem mutual fund online
When you have purchased mutual fund online it can be redeemed through the AMC’s website or through a trading account. As this is an online process you are asked to login with your ID and select the desired funds and the number of units you wish to redeem and confirm.
Exit or load charges:
Generally, equity oriented mutual funds have one percent of exit load if in case redeemed within a year of purchase. Also, there are schemes such as liquid or ultra short term which does not have any exit load. Therefore, the load or charges vary from scheme to scheme and these are to be paid by the investors at the time of redemption of units.