Mutual Funds are not something new to most people. If considered merely, it can be seen as a pool of resources from investors all around the country and even across the globe who is investing in different assets like equity, debt, money market instruments, and the government securities. Everyone has a different investment objective and can choose a specific fund that would satisfy the individual purpose and goals. Putting aside a part of the earnings in an asset class that offers everyone should do high returns. However, the problem is most people do not have sufficient knowledge about where to invest and how to manage the money. Mutual Funds are the ideal answer to all such questions. They are quite convenient and regulated. They also have the potential of offering good returns.
You can gain high liquidity, and the entry or exit options would vary on the fund. You always have the option of liquidating the mutual fund investments and sort the situation. You can get a lot of information on mutual funds on the Internet or other sources, but you would hardly find much literature about the redemption of mutual funds. Let us know more about the redemption of mutual funds – what it is and how it is done. You would also become aware of when the redemptions should be made.
1. What is Mutual Funds Redemption?
The redemption of the mutual funds is a process in which the investor has intentions to sell the investments in a particular fund. This could b3e for various reasons, like an emergency. It could also be from the speculation of the investor that the fund has reached its peak performance and keeping the fund locked any further would not be a good idea. The investor wishes to switch the investments from one fund to another. He could even opt for a different investment option altogether.
Buying a mutual fund is easy. Multiple purchase routes are present. One can buy it online or through a bank. It could even be purchased through an agent. However, the question lies if redeeming the funds is as easy? It is. It is as simple as buying the funds.
2. What are the principal methods of mutual fund redemption?
- Offline – If someone has bought the units through an agent, then the agent could redeem the same. They would need to fill in the mutual fund redemption form that specifies the plan and the scheme name and the folio number. The number of units to be withdrawn needs to be mentioned as well. The agent would submit the form at the office. Once the process has been initiated, the proceeds are credited into the beneficiary account through NEFT. Otherwise, a cheque would be dispatched to the registered mailing address.
- CAMS – Computer Age Management Services offers individuals the options to redeem mutual funds of several AMCs through their offices. You would need to download a redemption form, fill it up, put in your signature, and submit it to the office. There are some other agencies as well which would help you with these services. The investor would benefit from choosing these services because these agencies cover a lot of different AMCs. They offer a single point of contact.
- Trading or Demat Account – If the mutual funds have been bought through a trading or Demat account, the redemption would be done in a similar fashion. The whole process would be conducted online. An e-payout would be made against the redemption request into the same bank account that is registered with the Demat account.
- Directly through the AMCs – There would be a login ID and password if the user had purchased the funds directly from the AMCs. Various transactions can be performed easily, and the existing units can be redeemed as well. All the units can be redeemed if they are not locked in. Partial units can be withdrawn or just a specific amount from the current investments. The balance units would remain and perform accordingly. Instead of doing it online, you can also visit their offices and get it done. The redemption amount would reach the customer through NEFT once it is processed. The online mode is obviously quite faster. You would need to fill up the forms properly, and signatures should be recognizable. The forms can get rejected because of inaccurate filing and mismatch in the signature.
3. The redemption request cannot be canceled, altered, or revoked once it has been processed. The application cannot be set to be processed at a particular date or price. They would be redeemed at the applicable NAV of the specific day. Requests made before 3 p.m. would take into consideration the NAV of the same day, otherwise of the next business day.
4. The details are verified after the reception of the request. The payout is made within 2-4days. It might take a little more time in case of a cheque dispatch.
5. Though the redemptions can be made after the lock-in period, if any, you should do that only for the following reasons:
- The investment goal has been achieved, like buying a car, a change of objectives, or some other valid reason.
- There have been some changes in the scheme, which makes it unsuitable for the investor.
- The scheme has been underperforming for some time while the peer funds are doing better, or you are losing the opportunity of better gains, in other words.
6. What are some of the things that need to be considered before initiating redemption?
The following things need to be considered:
- Type of fund: Investing in an ELSS means it would come with a lock-in period of 3 years and this would be for each unit that has been brought, even the SIPs. In case of fixed maturity plans, the redemptions can happen only at maturity. Therefore, it is essential to know more about the type of fund before you buy it.
- Payout time: It takes about 2-4 business days for the payout to be credited in the account of the beneficiary. It would be a sensible idea to plan ahead if you would need the funds.
- Exit load: The open-ended funds do not have a lock-in period but would attract an exit load if they were redeemed within a specified period.
- Tax implication: The equity-based mutual funds are not taxable if they are held for more than a year but would attract heavy taxes along with education cess and surcharges if they are redeemed within a year
- Market volatility: It should be the last reason to exit from a fund. Market experts always suggest high-value stocks in the opportunity of a market fall. You should always buy low and sell high to make the most profit.
Mutual funds investments are quite flexible concerning the amounts, period of investment and redemption. Thus, while choosing the funds the person should have an open mind and look at the big picture.