Investors have a range of investment options to choose from, and of late, mutual funds have gained in popularity on the back of rising equity markets. While investing in mutual funds is an ideal choice for fulfilling specific financial objectives according to one’s risk appetite, a common cause of worry for many mutual fund investors is how to redeem mutual fund units after achieving certain financial goals. The process of redemption involves withdrawal of units from a mutual fund scheme and getting the money back from your investment at net asset value (NAV) on the date of withdrawal.
Mutual fund units can be redeemed through both online and offline modes. Here are a few ways in which the mutual fund units can be redeemed:
Direct Redemption through the Mutual Fund House: If you have purchased mutual fund units directly through the Mutual Fund House, i.e., the Asset Management Company (AMC), you can straightaway login to their portal using existing login credentials, and fully or partial redeem mutual fund units in the scheme, as long as they are not under the lock-in period. If all the units are redeemed, the account gets automatically closed, but the balance units continue to perform in case of partial redemption. While the above redemption process is online, you can also physically visit the AMC and submit a duly filled redemption request form. The redemption amount is then credited into your bank account via NEFT or sent through a cheque to your registered address, post the request processing.
Redemption through an Agent: If you have invested in mutual funds through an agent, then redemption of mutual funds shall also happen through the same agent. The agent submits to the AMC, your duly filled form mentioning the plan and folio details along with the number of units to be withdrawn. Once the redemption process is initiated by the AMC, the money is credited into your bank account or a cheque is sent to your registered address.
Redemption of Mutual Funds through certified Third party Portals: Certain investors buy mutual funds online through trusted third party portals such as Finserv MARKETS that offer several top rated mutual funds by partnering with their fund houses. These portals also service mutual fund redemption requests online through a simpler, convenient process. Once the redemption request raised through the portal is confirmed, the money is directly credited into your linked bank account.
Redemption through Demat Account: Investing in mutual funds through an online Demat or trading account is another common option that certain investors prefer. If you have bought mutual funds via a Demat account, then the redemption also must happen through it. As the trading process is completely online, an electronic payment of net asset value against redeemed mutual funds are credited directly into the bank account linked to the Demat account.
Redemption through CAMS: CAMS (Computer Age Management Services) caters to investors’ requests of mutual fund redemption of various AMCs through their office. A duly filled form may be submitted to CAMS office, and after receiving the request, the money is paid to the beneficiary’s registered bank account within 2-4 working days. The CAMS office serves as single point of contact agency that offers multiple services for numerous AMCs.
However, it is important to note that a redemption request once processed cannot be altered or cancelled. A request once received is processed by the NAV of the prevailing business day, particularly if the request is received before 3 p.m. Otherwise, the NAV of the next business day is counted.
An investor might have his own compelling reasons ranging from investment goal fulfilment to fund underperformance, to redeem mutual funds. However, it is essential that the investor keeps certain things in mind before initiating a mutual fund redemption request:
Fund Type: One must be aware of the type of mutual fund scheme one has invested into, since the lock-in period varies according to the fund type/scheme. For ELSS (equity linked saving schemes), a minimum lock-in period of 3 years exists and you can redeem its funds only after the completion of the lock-in period. Similarly closed-ended mutual funds or fixed maturity plans can be redeemed only after their expiry period.
Exit Load: They are charged to discourage premature withdrawals. Open ended funds do not have any lock-in period and attract exit load charges if they are redeemed within a specified period. The exit load charges and period vary from scheme to schemer, and is not fixed.
Pay out duration: It usually takes 2-4 business days to get the money credited into your bank account once a redemption request is processed. So, one must plan beforehand if the funds are needed for a particular purpose.
Tax Clauses: Equity-based mutual funds redeemed within a year would attract 15 percent long-term capital gains (LTCG) tax along with surcharge and education cess, and 10 percent tax for such funds redeemed after one year. On the other hand, non-equity based mutual funds redeemed within 3 years would be taxed with LTCG applicable as per individual income tax slab.
Market Volatility: This must be the last reason to exit a mutual fund. Buying low and selling high is the basic market trading norm, and most market experts suggest buying high value yet low priced stocks in the event of any market fall. Exiting the fund during short-term market fluctuations only means low returns or capital erosion, since the equity investments always pay off in the long term.
While investing in mutual funds is seen as a long-term option to fulfil one’s financial investment goals and wealth creation, mutual funds are also flexible in terms of investment amount, tenure, and redemption process. So, when making such long-term commitment towards wealth creation, it is important to guard oneself in terms of source of buying and redeeming mutual funds. Buying and redeeming mutual funds online from AMC partnered portals such as Finserv MARKETS is a safe bet for your investments in the long term.
On Finserv MARKETS, you can choose from a variety of top rated mutual funds of several fund houses, and invest in a basket of securities by diversifying the risk. On Finserv MARKETS, these top rated mutual funds’ schemes are open-ended and can be encashed easily. They can easily be redeemed in most cases, barring the ELSS that come with a lock-in period of three years. Once the redemption request is processed, the value of the funds are transferred into your designated bank account within 3 working days. In certain cases, the fund managers may indicate the minimum exit load charges applicable.