The proper timing to redeem mutual funds is a crucial decision that is influenced by a number of circumstances. You must conduct a thorough investigation into the fund’s performance as well as the grounds for Mutual Fund Redemption. Typically, investors act on emotion and redeem units as a reflex move when the fund underperforms or the market becomes anxious. This, however, is not a good idea. Even in unstable markets, investors should recognize that there is potential for good returns.
Mutual Funds are actually professionally managed by fund managers. These fund managers make proactive decisions based on the market movements they see. However, if the fund regularly performs poorly over a longer period of time, you may decide to sell.
Mutual Fund Redemption Meaning
The practice of removing units from a mutual fund in order to receive returns from the fund is known as mutual fund redemption. When you redeem a mutual fund, the money will be deposited into your account nearly immediately. As a result, mutual funds are extremely advantageous in this regard.
Process for Mutual Fund Redemption
You have the option of redeeming your mutual funds either online or offline. The redemption can be done via a convenient method on any working day.
To ensure that you earn decent returns, you should redeem mutual funds in a strategic manner. It’s important to remember that mutual fund unit prices are only set once a day. As a result, as a financially prudent investor, you must ideally seek redemption before your fund house’s deadline or before the financial markets close their transactions. Your money will be redeemed at the current day’s net asset value (NAV) of your fund. The net asset value (NAV) is the sum of a fund’s assets minus its liabilities.
Redeeming A Mutual Fund Using a Redemption Form
If you wish to physically redeem your mutual funds, you must first obtain a Redemption Request Form, which must include information such as the unit holder’s name, the name of the mutual fund scheme, the folio number, the number of units to be redeemed from the scheme, plan details, and so on. You must sign the form and submit it to the Registrar’s authorized office or the asset management business once it has been completed (AMC). You can also take it to any official location of a fund house that accepts transactions and presents it there. The funds from your redemption will be deposited to the registered bank account of the fund unitholder.
Mutual Fund Redemption – Online
You can also redeem your mutual funds online by going to the mutual fund’s official website. If you purchased a mutual fund through a third-party mutual fund online portal, you can redeem it through the portal.
- On the website, you must select online transactions.
- You will need to log in to the website using your folio number and/or your Permanent Account Number to access your mutual fund (PAN).
- The next step is to choose your plan and the number of units you want to redeem.
- After that, you must confirm your transaction.
- You can redeem your mutual funds through central service providers like Karvy, CAMS (Computer Age Management Services Pvt. Ltd.), and others, in addition to your mutual fund’s website or web portal.
How Long Will It Take You To Receive The Money From Your Fund Redemption?
When you redeem your mutual fund, you should expect to receive the funds from your unit within 1 to 5 business days. You will receive your money within 1 to 2 working days if you redeem a debt-related or liquid fund. When you redeem an equity mutual fund, on the other hand, you will receive your funds within 4 to 5 working days. When you redeem your mutual fund units, how much money will you receive?
You can figure out the approximate value of your mutual fund investments using a simple computation. All you have to do is multiply the number of units you own on a given day by the scheme’s NAV for that day. This quantity will be determined by a number of additional criteria, including:
- Exit load
- Securities Transactions Tax (STT)
- The NAV that applies to your fund units is the NAV that is fixed for the day and time you apply for a redemption.
Mutual Fund Redeem Charges
When you plan to redeem any of your mutual fund units as an investor, you need to be prepared to pay a load or other fees in a few scenarios.
You may be required to pay an exit load of 1% if you decide to redeem a fund before the first year has passed. This will be determined by the type of scheme you have and the mutual fund business you work with.
For equities mutual funds, exit loads are usually charged. The exit load will be deducted from the NAV for each fund unit when you redeem one of these funds. Exit loads may not be required for ultra-short-term funds or liquid funds.
How Will You Receive the Funds from Your Mutual Fund Redemption?
After you redeem your mutual fund unit(s), the money will be deposited into your designated bank account. The investor will need to supply the IFSC code and account number for his or her bank. RTGS and NEFT facilities will also be required by the bank and branch.
If the fund house does not have enough bank information, the money is sent to the investor in the form of checks.
Points to Remember
When redeeming mutual funds, keep the following in mind:
- The time of day when you request redemption is critical since the Net Asset Value (NAV) for each day is announced at the close of the day’s trade. However, the current day’s NAV applies only to redemption requests received by 3 p.m. that day; otherwise, the next day’s NAV applies.
- Bank Accounts – You must maintain an active bank account that is linked to and registered with your AMC. When you redeem your mutual funds, the proceeds are deposited into your AMC-registered bank account. If that account is inactive, you may be required to submit a cancelled check or passbook from your new bank account, or you may be required to present a bank declaration signed by your bank manager.
- Turnaround Time – It takes three working days for the earnings from the money to be credited to your registered bank account after you submit your redemption request. However, it is dependent on the day of the week you made your redemption request.
- Funds with a Lock-in Period – Open ended schemes can be redeemed at any time, however some schemes, such as the ELSS (Equity Linked Savings Scheme), can only be redeemed after three years.
- Redemption Fees — When you redeem your funds, you may be subject to fees such as exit loads and taxes. The amount charged is determined by the time period for which you have requested money redemption. Before you decide to redeem your funds, it’s a good idea to ask about the costs. Before preparing to exit your fund, you should get advice from your fund management or financial advisor. You can also conduct online research to determine whether or not you should redeem your fund units. Online, you’ll also be able to locate dependable mutual fund redemption instructions and advice.
- Make sure you’re redeeming for a good purpose that won’t interfere with your finances. This activity is known as ‘churning,’ and it occurs when investors redeem from one plan to invest in another in the same category. Churning is not recommended unless there is some rationale to it. You should check to see if your mutual fund scheme has a lock-in period before redeeming your units. Equity Linked Saving Scheme (ELSS) funds are among these funds. They have a three-year lock-in period. As a result, before you consider redeeming your fund, you must first comprehend its nature. Open-ended funds, on the other hand, can be redeemed at any time.
- Redemption Process: There are several ways to redeem mutual funds, however it all relies on how they were purchased:
- Redemption of Mutual Funds Purchased Through an AMC — The most prevalent method of investing in mutual funds is through an AMC. You must send a completely signed redemption request to the AMC’s office if you want to redeem your money offline. Name, plan, scheme information, folio number, and number of units to be redeemed are often included on a redemption form. On the form, all of the holders’ signatures are required. The redemption proceeds are credited to the registered bank account once the form is filed.
- Mutual funds acquired online can be redeemed using the AMC’s website or a trading account if they were purchased online. Because this is an online process, you must log in, pick the chosen fund, and confirm the quantity of units to be redeemed.
- Before intending to exit your fund, talk to your fund manager or financial advisor. Make sure you’re redeeming for a good purpose that won’t interfere with your budget. This practise is known as ‘churning,’ and it occurs when investors redeem from one scheme to invest in another in the same category. Churning is not recommended unless there is some logic to it.