Mutual funds are versatile investment instruments that help you grow your money by investing in diverse investment options. However, on reaching your goal or faced with a financial crunch, how do you get back your principal amount or earned returns? Simple – You will have to sell your mutual fund units to the mutual fund company. This process is known as mutual fund redemption.
New investors often need help with redemption, with the general assumption that the withdrawal process is complex. However, online mutual fund redemption is as simple as investing in a mutual fund.
Mutual fund redemption refers to withdrawing mutual fund units based on net asset value (NAV) on the day of redemption. This article outlines the process of online mutual fund redemption and other details you need to know as an investor.
How to redeem mutual funds?
You can redeem your mutual fund investment if you are close to your financial goal or have achieved it already. You may also want to redeem it in case of a financial crisis or simply want to book a profit. Below are some situations that may require you to redeem your mutual fund investment:
Emergencies: Financial crisis is among the common reasons investors redeem mutual fund investments. A medical emergency in the family, job loss, or other sudden financial issues may cause this.
Misalignment of financial goals: Financial experts suggest investing in certain mutual funds to get significant returns. However, a close look at the market may reveal that the particular fund may fail to fulfill your unique financial goals in the long run. It is ideal to redeem mutual fund investments at such a time.
The scheme is underperforming: If you have invested in mutual funds, you must keep an eye on the portfolio’s performance. While you should ideally ignore short-term fluctuations and underperformance, you may need to exit the fund if it is consistently underperforming. A fund that consistently underperforms will not contribute to your financial goals.
To book profits: Sometimes, when the markets are high, it may be tempting to redeem the mutual fund and book a profit. While financial experts do not endorse this strategy and advise staying invested until the goal is reached, some investors may opt to redeem for instant gains.
When to redeem mutual funds?
If you have set your mind on mutual fund redemption, below are some ways in which you can do that:
Using your Demat or trading account online: If you invested in mutual funds through a Demat or trading account, you should redeem the fund using the same account. You will have to call the broker to initiate the redemption process. The amount will come into the registered bank account once the redemption process is complete.
Through an agent: You can redeem your mutual funds offline by submitting your redemption form to your agent, who will submit it to the AMC or RTA office. You can do this online if your distributor offers an online buy-and-sell facility.
Online mutual fund redemption: Most investors use the asset management company directly or the registrar and transfer agent (RTA) to make mutual fund investments. If so, you can redeem it online through a few simple steps. While AMCs allow redemption of only their schemes, RTAs accept it for all the AMC schemes they service. Apart from AMC and RTA, you can also choose among many online mutual fund platforms for redemption.
Alternatively, you can also visit the AMC office and redeem the amount offline. Upon completion of the redemption process, the amount is transferred to the registered bank account or through an account payee cheque if the electronic transfer details are not mentioned.
However, the online redemption mode is a more convenient process.
Below are the steps involved in redeeming mutual funds online:
· Log in to the mutual fund website or the third-party website from where you invested in the mutual fund
· Choose among the transactions that you made on the website
· Access the mutual fund you wish to redeem by logging in using a folio number or PAN
· Choose the number of units you wish to redeem and confirm
How much time does mutual fund redemption take?
Mutual fund redemption online is a quick process that allows you to access your money quickly. Usually, the redemption cut-off time is 1.30 pm for liquid mutual funds and 3.00 pm for others. If you submit the redemption request before the cut-off time, you can redeem your fund based on the NAV of that day. Thus, it would be best if you planned your exit decision smartly. Check the NAV price and exit within the cut-off hours of the day when you think the NAV price is good.
Another question is – When will the money be reflected in the investor’s bank account? This doesn’t depend on the mode of redemption.
In the case of liquid or overnight funds, money is transferred within one working day after the redemption is requested. For all other funds, money is transferred on the 3rd working day after requesting redemption. These are referred to as T+1 and T+3 working days, respectively.
How much money will the mutual fund redemption yield?
A simple way to know how much you will receive upon redemption is to multiply the number of units you redeem with the NAV. However, the final amount will also depend on other factors, such as the exit load, securities transactions tax, and the NAV applicable to your units.
Exit load, is the amount that will be deducted if you exit before the completion of 1 year in the scheme. This is usually 1% and is charged for equity mutual funds.
Exit load, if applicable, is deducted from the NAV for each mutual fund unit redeemed. Liquid or ultra-short-term funds usually do not have an exit load.
Final Word
While it is easy and quick to redeem a mutual fund online, you must consider all the aspects carefully before making a redemption request. Research the fund’s performance in detail, assess your reason for seeking redemption and check if there is an exit load applicable on the redemption. Sentiment-driven exit decisions can often be imprudent.
Mutual fund managers are professionals who make proactive decisions based on market movements, and any momentary underperformance can get rectified down the line. Do not jump into withdrawing your money in case of temporary under-performance (or over-performance) of the fund, as a long-term investment strategy in mutual funds has been time-tested to yield good returns. If you have decided to redeem, you can easily do it online and get your money.
Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
