Understanding Mutual Fund Redemption in India: Exiting Your Investments Wisely
Posted on 11-Jul-2024
6 min read
Mutual fund redemption India: Learn how to withdraw your investment, best timing, taxes & exit loads.
Table of Content
Mutual funds offer a convenient and professionally managed way to invest in the Indian capital market. However, there might come a time when you need to access your invested capital. This is where mutual fund redemption comes in.
In other words, it is a process of selling back your mutual fund units to the asset management company (AMC) that has been managing your funds.
On that note, sit tight, get a snack, and let this blog post explain the redemption process, its different types, exit loads, and factors to consider when exiting your mutual fund investments in India in detail.
Mutual fund redemption refers to selling your units in a mutual fund scheme back to the AMC, like Shriram AMC, in exchange for cash. You can redeem all or a portion of your units, depending on your needs.
Redemption can be done through various methods:
• Online: Most AMCs offer online redemption facilities through their investor portals. This is a convenient and quick method.
• Offline: You can submit a redemption request form at the AMC office or through your broker/distributor.
• Unit-Based Redemption: This option allows you to directly choose the number of fund units you want to sell. The amount you'll receive depends on the current Net Asset Value (NAV) per unit and the number of units redeemed.
• Amount-Based Redemption: Here, you specify the total amount you want to withdraw. The number of units redeemed will be automatically calculated based on the current NAV to fulfill your request.
• Redeem All: This option lets you sell your entire investment in the mutual fund at once.
Key Points:
Here are a few points to remember regarding mutual fund redemptions:
• Percentage of NAV: Exit load is typically a percentage of the Net Asset Value (NAV) of the units being redeemed. This number is usually set at 1 per cent.
• Varies by Scheme: Different mutual fund schemes have different exit load structures. Check the scheme information document (SID) for details.
• Not Universal: Not all funds charge exit loads. Some have zero exit loads.
• Discourages Short-Term Trading: Exit loads aim to protect long-term investors from market volatility caused by frequent buying and selling.
Also Remember To:
• Check the SID: Before investing, understand the exit load applicable to the chosen scheme.
• Plan Your Redemptions: Factor in the exit load when calculating your potential returns.
• Broker Redemption: If you purchased through a broker using your demat account, submit a sell order with the same broker. The redemption proceeds will be credited to your linked bank account.
• Direct Redemption: If you invested directly with the AMC or a distributor, use their online platform to initiate the redemption. These platforms typically allow buying, monitoring, and selling your mutual funds.
• Registrar and Transfer Agent (RTA) Redemption: RTAs like CAMS or KFin Technologies manage transactions for mutual funds. You can also redeem your units directly through them.
• Reaching Financial Goals: If you've achieved your financial goal, like saving for a child's education or retirement, you might redeem your units to access the funds.
• Needing Funds for Emergencies: An unexpected emergency might necessitate redeeming some or all of your units.
• Portfolio Rebalancing: To maintain your target asset allocation, you might redeem units from over performing schemes and invest in those lagging behind.
• Dissatisfaction with Fund Performance: If a fund consistently underperforms its benchmark or your expectations, redemption might be an option.
• Equity Funds: Short-term capital gains (held for less than 1 year) are taxed at 15%. Long-term capital gains exceeding Rs. 1 lakh in a year are taxed at 10% with indexation benefits.
• Debt Funds: Short-term capital gains are taxed according to your income tax slab. Long-term capital gains exceeding Rs. 3,000 are taxed at 20% with indexation benefits or at a concessional rate of 30% without indexation (investor's choice).
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
1. What if the NAV of the fund is lower than my purchase price when I redeem?
In this scenario, you would incur a capital loss. You cannot claim this loss directly against your income for tax purposes. However, you can offset short-term capital gains from equity funds with short-term capital losses from equity funds to reduce your tax liability.
2. Can I redeem my mutual fund units if they are held jointly with someone else?
Yes, but both account holders (or their authorized representatives) might need to sign the redemption request form. The redemption proceeds would typically be credited to the first account holder's linked bank account.
3. What happens to my redemption request if it coincides with a market holiday?
The redemption will be processed on the next business day. The NAV applicable for your redemption will be the NAV declared on that day.
4. Are there any charges besides exit loads associated with redemption?
Some AMCs might levy minor charges for processing physical redemption requests or for transactions below a certain value. It's recommended to check the AMC's schedule of charges for any applicable fees.
5. How can I track the status of my redemption request?
Most AMCs offer online facilities for investors to track their redemption requests. You can usually log in to your investor portal and view the status under the "Transactions" section.
In other words, it is a process of selling back your mutual fund units to the asset management company (AMC) that has been managing your funds.
On that note, sit tight, get a snack, and let this blog post explain the redemption process, its different types, exit loads, and factors to consider when exiting your mutual fund investments in India in detail.
What is Mutual Fund Redemption?
Let’s delve into the details of mutual fund redemption in this section.Mutual fund redemption refers to selling your units in a mutual fund scheme back to the AMC, like Shriram AMC, in exchange for cash. You can redeem all or a portion of your units, depending on your needs.
Redemption can be done through various methods:
• Online: Most AMCs offer online redemption facilities through their investor portals. This is a convenient and quick method.
• Offline: You can submit a redemption request form at the AMC office or through your broker/distributor.
What are the Types of Mutual Fund Redemption?
Now that you know the ways you can redeem your mutual fund units, let’s take a glance at the types of redemption:• Unit-Based Redemption: This option allows you to directly choose the number of fund units you want to sell. The amount you'll receive depends on the current Net Asset Value (NAV) per unit and the number of units redeemed.
• Amount-Based Redemption: Here, you specify the total amount you want to withdraw. The number of units redeemed will be automatically calculated based on the current NAV to fulfill your request.
• Redeem All: This option lets you sell your entire investment in the mutual fund at once.
Exit Loads Associated with Redemption
Exit load is a fee charged by mutual funds in India when you redeem your units within a specific period from the purchase date. It discourages frequent withdrawals and encourages long-term investment.Key Points:
Here are a few points to remember regarding mutual fund redemptions:
• Percentage of NAV: Exit load is typically a percentage of the Net Asset Value (NAV) of the units being redeemed. This number is usually set at 1 per cent.
• Varies by Scheme: Different mutual fund schemes have different exit load structures. Check the scheme information document (SID) for details.
• Not Universal: Not all funds charge exit loads. Some have zero exit loads.
• Discourages Short-Term Trading: Exit loads aim to protect long-term investors from market volatility caused by frequent buying and selling.
Also Remember To:
• Check the SID: Before investing, understand the exit load applicable to the chosen scheme.
• Plan Your Redemptions: Factor in the exit load when calculating your potential returns.
Methods to Exit from Mutual Funds
There are three main ways to redeem your mutual fund units in India:• Broker Redemption: If you purchased through a broker using your demat account, submit a sell order with the same broker. The redemption proceeds will be credited to your linked bank account.
• Direct Redemption: If you invested directly with the AMC or a distributor, use their online platform to initiate the redemption. These platforms typically allow buying, monitoring, and selling your mutual funds.
• Registrar and Transfer Agent (RTA) Redemption: RTAs like CAMS or KFin Technologies manage transactions for mutual funds. You can also redeem your units directly through them.
When Should You Consider Redeeming Your Fund Units?
There's no one-size-fits-all answer. Here are some scenarios where redemption might be considered:• Reaching Financial Goals: If you've achieved your financial goal, like saving for a child's education or retirement, you might redeem your units to access the funds.
• Needing Funds for Emergencies: An unexpected emergency might necessitate redeeming some or all of your units.
• Portfolio Rebalancing: To maintain your target asset allocation, you might redeem units from over performing schemes and invest in those lagging behind.
• Dissatisfaction with Fund Performance: If a fund consistently underperforms its benchmark or your expectations, redemption might be an option.
Ways to Avoid Tax on Mutual Fund Redemption
Capital gains tax implications on redemption depend on the type of fund and the investment period:• Equity Funds: Short-term capital gains (held for less than 1 year) are taxed at 15%. Long-term capital gains exceeding Rs. 1 lakh in a year are taxed at 10% with indexation benefits.
• Debt Funds: Short-term capital gains are taxed according to your income tax slab. Long-term capital gains exceeding Rs. 3,000 are taxed at 20% with indexation benefits or at a concessional rate of 30% without indexation (investor's choice).
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
How to Calculate Your Expected Investment Returns Using the Shriram AMC Calculator
Navigate to the official Shriram AMC website and head over to the ‘Plan’ section to find the different mutual fund calculators. The next steps are pretty straightforward. All you have to do is select the calculator and enter your investment details, like invested amount, tenure, etc. The calculator will then furnish the results for the potential return on your investment.Final Words
Mutual fund redemption allows you to access your invested capital, but it's crucial to understand the process before initiating it. Consider your redemption options, exit load, redemption methods, etc. before redeeming your units, and ensure you seek advice from a professional investment advisor or an asset management company in this journey.FAQs
Here are a few frequently asked questions about mutual fund redemption in India:1. What if the NAV of the fund is lower than my purchase price when I redeem?
In this scenario, you would incur a capital loss. You cannot claim this loss directly against your income for tax purposes. However, you can offset short-term capital gains from equity funds with short-term capital losses from equity funds to reduce your tax liability.
2. Can I redeem my mutual fund units if they are held jointly with someone else?
Yes, but both account holders (or their authorized representatives) might need to sign the redemption request form. The redemption proceeds would typically be credited to the first account holder's linked bank account.
3. What happens to my redemption request if it coincides with a market holiday?
The redemption will be processed on the next business day. The NAV applicable for your redemption will be the NAV declared on that day.
4. Are there any charges besides exit loads associated with redemption?
Some AMCs might levy minor charges for processing physical redemption requests or for transactions below a certain value. It's recommended to check the AMC's schedule of charges for any applicable fees.
5. How can I track the status of my redemption request?
Most AMCs offer online facilities for investors to track their redemption requests. You can usually log in to your investor portal and view the status under the "Transactions" section.
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