Mutual Fund Redemption: Meaning, Types, & How to Redeem Units
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Mutual funds have become a popular investment option for individuals looking to diversify their portfolios and earn higher returns. These investment vehicles offer a range of benefits, such as professional management, diversification, and liquidity. However, to fully use the benefits of mutual funds, investors must understand the concept of redemption.

What is Mutual Fund Redemption?

Mutual fund redemption refers to the selling of mutual fund units from a mutual fund investment. When investors decide to redeem their fund units, they are liquidating their holdings and converting them back into cash. This allows investors to exit the mutual fund and retrieve the value of their investment. The importance of redemption for investors lies in the flexibility it offers.

It provides an avenue for investors to access their funds when needed, whether it be for financial goals, emergencies, or to reallocate their investments. Redemption also plays a crucial role in managing investment portfolios, allowing investors to adjust their holdings based on market conditions and financial objectives.

What are the Types of Mutual Fund Redemption?

When it comes to mutual fund redemption, investors can use several methods to withdraw their fund units.

One common method is online redemption, which allows investors to redeem their fund units through online platforms provided by their fund house. This method offers convenience and accessibility, as investors can initiate the redemption process from the comfort of their own homes.

On the other hand, offline redemption involves submitting physical redemption forms directly to the mutual fund company or through intermediaries such as banks and financial advisors. This method may be preferred by individuals who prefer a more traditional approach or face difficulties accessing online platforms. 

Additionally, systematic withdrawal plans (SWP) offer a systematic approach to redeeming mutual fund units. With SWP, investors can specify a fixed amount or percentage of their investment to be redeemed regularly, providing a steady income stream. This method is often used by retirees or individuals looking for a regular cash flow from their mutual fund investments.

How to Redeem Mutual Fund Units?

Investors redeeming mutual fund units have multiple options. They can redeem units online for convenience and quick transactions directly through the mutual fund house platform. Alternatively, for those preferring traditional methods or lacking online access, offline redemption is available through the mutual fund company or via banks and financial advisors.

Another choice is direct redemption through the AMC or a distributor, offering flexibility. Regardless of the method, investors must provide specific documents, including folio numbers, bank details, and ID documents, to complete the redemption process efficiently.

How to Redeem your Mutual Funds Online?

Online redemption of mutual fund units offers investors a convenient and efficient way to access their funds. To initiate the process, investors can log in to the online platform provided by the mutual fund company or online brokerage. Once logged in, they can navigate to the redemption section and select the mutual fund units they wish to redeem.

Carefully review the terms and conditions, including any applicable charges or fees associated with the redemption.

After confirming the redemption details, investors can submit their request online. The online platform will confirm the redemption and provide an estimated timeline for the funds to be credited to the investor's designated bank account.

That said, keep track of the transaction reference number and corresponding communication for future reference. Investors should ensure a secure internet connection and keep their login credentials confidential to navigate online platforms and portals effectively.

How to Redeem Your Mutual Funds Offline?

For investors who prefer to redeem their mutual fund units offline, a detailed process is in place to facilitate this transaction. To initiate an offline redemption, investors can visit the nearest branch of the mutual fund company or contact their designated investment advisor.

Carry the necessary identification documents, including valid government-issued identification and the original investment statement or account details. Upon arrival at the branch, investors can approach the designated representative and request a redemption form. It is crucial to accurately fill out the form, providing details such as the folio number, scheme name, and the number of units to be redeemed.

Further, investors may need to provide bank account details for the redemption proceeds to be credited. After completing the form, it should be submitted to the representative, along with any required supporting documents. The representative will validate the information provided and process the redemption request accordingly.

Retain a copy of the filled-out form and any acknowledgement receipt provided by the branch for future reference. The redemption proceeds will typically be disbursed through a check or credited directly to the investor's registered bank account, per the investor's instructions.

What are the Factors to Consider Before Redeeming Mutual Funds?

Before redeeming mutual funds, there are several important factors that investors should carefully consider:

  1. Assess your investment goals and time horizon. Understanding the purpose of the investment and the desired timeframe for achieving those goals can help determine whether redeeming mutual funds is the right decision.
  2. Evaluating market conditions and fund performance is essential. Analysing overall market trends and the specific performance of mutual funds can provide insights into the potential returns and risks involved in the redemption process.
  3. Investors should be aware of any exit loads or fees associated with redeeming mutual funds. These charges can significantly impact overall returns and should be considered.
  4. Exploring alternative investment options is advisable.

How Long Will it Take to Receive Your Mutual Fund Redemption Amount?

One important aspect of mutual fund redemption is the time it takes to receive the amount. The duration of this process can vary depending on several factors. Typically, mutual fund withdrawal requests can take a few business days to a couple of weeks to be processed. The exact timeframe may depend on the specific mutual fund company and their internal procedures.

Investors must know this timeline and factor it into their decision-making process. Besides, it is worth noting that market conditions and any associated administrative requirements can also impact the time it takes to receive the redemption amount.

Frequently Asked Questions

How can I Avoid Tax on Mutual Fund Redemption?

Minimise taxes by holding equity funds for over a year and debt funds for over three years to qualify for lower long-term capital gains tax. Investing in ELSS also offers tax benefits under Section 80C.

How are taxes calculated on mutual fund redemption?

Taxes depend on the fund type and holding period. Equity funds held for less than a year are taxed at 15% (STCG) and more than a year at 10% (LTCG) on gains above Rs. 1 lakh. For debt funds, less than three years are taxed per the income tax slab (STCG) and over three years at 20% with indexation (LTCG).

Can I redeem only a portion of my mutual fund investment?

Yes, mutual funds typically allow partial redemptions, enabling you to withdraw part of your investment while keeping the remainder active.

Is there any lock-in period for mutual fund redemption?

Most funds have no lock-in period, except ELSS, which has a 3-year lock-in, during which redemptions are not allowed.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.