Are you considering redeeming your mutual fund anytime soon? While it can be tempting to cash out your investments finally, there are some essential dos and don’ts to keep in mind before redemption. Especially if you are a beginner in investing, redemption can be a tricky process. But don’t worry, we got you covered. In this blog, we will provide you some actionable insights about redeeming your fund and avoiding costly mistakes. So belt up and get ready to take your investing game to the next level.
What is mutual fund redemption?
Mutual Fund redemption is the process of selling or liquidating units of your mutual fund. When you invest in a mutual fund, you pool money in a portfolio of stocks, bonds, and other fixed income securities. However, when you redeem units of your mutual fund investment, you are selling it back to the mutual fund company at its current Net Asset Value(NAV). Sometimes, the company levies an exit load for premature redemption of the fund.
There are several reasons why an investor may choose to sell their mutual fund holdings. Some popular ones include:
- Need for immediate cash: Many a time, investors feel the need to liquidate their mutual fund holdings to finance their expenses in emergency situations.
- Achieved the desired financial goals: When investors accumulate the wealth intended with the mutual fund investment, they redeem it to add to their liquid networth.
- Rebalancing portfolio: When market fluctuates, prices of securities get volatile. During this time, investors rebalance their portfolio by shifting a major portion of their funds in safer asset classes.
- Dissatisfaction with the fund’s performance: When the fund managers consistently underperforms and cannot meet the investors’ expectations, they might encash their holdings to invest in better alternatives.
- Retirement: Some people invest in mutual funds as a part of their retirement savings. Once they retire, they will need the money to sustain when they are not working anymore.
- Tax credit: When the mutual fund incurs a loss, some investors sell it for the purpose of tax loss harvesting. Similarly, when the mutual fund is about to reach the profit of Rs 1 lakh, they realize the gains to avoid paying the LTCG tax(Tax gain harvesting).
Note: Many investors end up redeeming their mutual funds as a result of panic selling due to volatile market conditions. However, historical trends have shown that such dips and corrections are often short-lived. Long-term investors may benefit by staying invested instead of trying to time the market. To achieve long-term objectives, investors can use an SIP calculator to determine how much money they need to set aside and allocate funds accordingly. Market declines can even present an opportunity to buy more units. By focusing on a long-term investment strategy, investors may be able to achieve their financial goals with more certainty
How to sell a mutual fund?(300 words)
Now that we understand some plausible reasons to sell a mutual fund, let’s move on to understand how to sell a mutual fund. Mutual funds can be redeemed in several ways depending upon the fund company and investor’s preferences. Here are some common ways to redeem a mutual fund.
1. Trading/Demat Account
One of the most popular ways to redeem mutual fund units is through trading or demat account. If an investor has purchased mutual funds through a trading or demat account, they can redeem the units by contacting their broker, and the process is completed online, with the redemption amount reflected in the registered bank account.
Investors who have invested in mutual funds directly through the AMCs(Asset Management Companies) or RTAs(Registrar and Transfer Agents) can redeem the units either online or offline by visiting the AMC office, and once the process is completed, the amount is sent to the registered bank account or through an account payee cheque if the IFSC code is not provided.
Alternatively, an investor can choose to redeem their mutual funds through an agent or distributor by submitting a duly signed redemption form, which is then submitted to the AMC or RTA office.
It’s important to note that online redemption is only available for the schemes offered by the AMC, while the RTAs can accept redemption for various AMC schemes serviced by them. Currently, there are two RTAs available, namely CAMS and KARVY. The redemption process can be completed within 2-3 steps through both the AMC and RTA channels.
Mutual fund redemption provides investors with a convenient way to liquidate their investments and give them quick access to cash. But it is crucial to know the proper procedures to avoid overlooking any necessary steps and making mistakes. Understanding how to conduct mutual fund redemption correctly can guarantee that all requirements are met and prevent errors from occurring.
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.