How to redeem your Investment from Mutual Funds
Ever wondered how to get your money out of a mutual fund? That’s where redemption comes in.
Redemption simply means selling your mutual fund units back to the company, turning your investment into cash. It can be carried out either partially (redeeming specific units) or fully (exiting the entire investment.
Sometimes, Investors might need to access their cash quickly due to unexpected expenses or to take advantage of new investment opportunities.Here’s what you should know as an investor.
Why investors encash their mutual funds?
Investors encash their mutual funds for a variety of reasons, often driven by a need for liquidity (accessing their cash) or a shift in their investment goals. Let’s take a look on top reasons:
- Need for Cash: Unexpected expenses, a down payment on a house, or simply needing readily available funds can prompt investors to redeem their mutual funds.
- Market Downturn: Fearing further losses during a market decline, some investors may sell their mutual funds to lock in profits or avoid potential losses.
- Dissatisfaction with Performance: If a mutual fund consistently underperforms expectations, investors might lose faith and redeem their shares to invest elsewhere.
- Rebalancing Portfolio: To maintain a desired asset allocation or investment strategy.
What are the different Methods to Redeem Your Mutual Funds?
| METHODS | DESCRIPTION |
| Online (Trading/Demat Account) | Exiting mutual funds through a demat account involves selling your units via your brokerage platform. Simply log in to your brokerage account, select the mutual fund you wish to redeem, and place a sell order.The funds will be deposited into your connected bank account.
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| Mutual Fund Company Website: | Most mutual fund companies (AMCs) allow online redemption through their official websites. You can usually log in with your folio number and password, select the fund and the number of units you wish to redeem, and then submit your request. |
| AMC Branch/Distributor Office(Offline): | You can visit a branch office of the AMC or a distributor that sells their mutual funds. Submit a redemption request form with your details, folio number, and redemption details. |
| Registrar and Transfer Agent (RTA): | RTAs like CAMS or Karvy maintain records for many AMCs. You can visit their designated office and submit a redemption request form. |
Exit Loads Involved in Redeeming Your Mutual Funds:
What are exit loads?
Exit loads are fees charged by a mutual fund company (AMC) when you redeem your units within a specific period from the date of purchase. This period is called the lock-in period. It acts as a discouragement for short-term investments and encourages investors to stay committed to the fund’s long-term goals.
How are exit loads calculated?
The exit load is typically about 1% of the total withdrawal amount. For equity funds, the minimum holding period is generally around one year. In contrast, the minimum period for debt funds can vary. There are debt funds available that are short and ultra-short, with a minimum duration that is often substantially shorter.
Why do AMCs charge exit loads?
There are two main reasons why AMCs charge exit loads:
- Discourage short-term trading: Exit loads deter investors from entering and exiting the fund frequently, which can disrupt the fund’s investment strategy.
- Compensate for fund expenses: Exit loads can help recover some of the expenses incurred by the fund manager in managing the portfolio.
Things to consider:
- Always check the exit load structure of a mutual fund before investing. It’s mentioned in the Scheme Information Document (SID).
- Factor in the exit load cost when calculating your potential returns.
- If you need to access your money quickly, consider investing in open-ended funds that don’t have exit loads.
Remember: Exit loads can eat into your returns if you redeem your units prematurely. Make sure you understand the lock-in period and potential exit load before investing in a mutual fund.
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