A mutual fund is a great financial instrument to invest and build wealth. You can select fund(s) based on your financial goals and risk profile. If the  fund is not performing to your satisfaction, you may choose to exit or redeem the units. In this article we cover when and how to exit or redeem mutual funds.

  1. Mutual fund redemption
  2. When to exit and redeem a fund
  3. How to exit and redeem mutual funds
  4. Why exit a mutual fund?
  5. How to redeem on ClearTax

1. Mutual Fund Redemption

A mutual fund consists of a pool of money from different investors. The fund manager invests this money in a wide array of assets – equities, debt securities and/or money market instruments. The ultimate aim is to deliver highest returns possible to the investors. With hundreds of funds out there, it is a difficult choice for an investor to decide which one to choose. An even more difficult decision is to track the performance and decide when and how to sell off the units. Different mutual funds have different rules and guidelines for entering, exiting and redemption. So, investors should keep these factors in mind when choosing a fund.

2. When to exit and redeem a fund

The right time to sell or redeem mutual funds should be guided by the investors’ financial goals. One might be invested in a mutual fund for 10-15 years with a purpose of purchasing a house or paying for a child’s education or any such similar goal. If the investor is getting close to that time, one should sell the fund irrespective of the state of the market. Another use case of redemption might be when a fund under-performs consistently for two or more years, and drops down in its accredited ratings.

3. How to redeem mutual funds

Once the reason for redemption is clear and finalized, it can be carried out as follows:

a. Directly through AMC

If the mutual fund was purchased directly from the Asset Management Company (AMC), then one can sell off the mutual fund by logging in their online portal. The online portal usually gives you an option of redeeming the units all or in part depending upon one’s requirement. Apart from using the online method, one can also conduct this process offline by visiting the AMC office. One just has to submit the duly filled MF redemption form and redeem the fund units. After processing the request, you will receive the redemption amount via NEFT or through a cheque sent to the registered address. Usually the online mode is much faster resulting in the amount being credited in a day or two.

b. Through a trading or Demat account

If the mutual funds were bought through a Demat account or trading account then the redemption is also processed through the same. After completing the trading process, they make an electronic payout (NEFT or IMPS) against the redemption request. This amount gets credited into the same bank account that is registered with the Demat account.

c. Offline through an agent or distributor

If you have purchased the mutual fund units via an intermediary, then you may sell off through the agent as well. The process simply involves filling a duly filled redemption form with the number units to be redeemed. Once they process the request, money is credited via NEFT. You may also accept a cheque sent to your registered address.

d. Through registrar and transfer agency

Some central services likes CAMS and Karvy offer the option of redeeming mutual fund bought from several AMCs. You can download a redemption, and submit it duly filled and signed at the nearest CAMS office.

4. Why do investors redeem mutual fund?

An investor may have numerous reasons to invest or sell fund units. You should rationally consider the following aspects before redeeming impulsively.

a. If AMC cannot deliver what it promised

Most of the people invest with a financial goal that commiserates with the fund objective. This objective plays an important role in finalizing what funds you want to include in your investment portfolio. However, an active investor tracking the market might sell off or redeem units, if the long-term prospects seem negative.

b. When the market is high

One should not sell just because the markets have touched new highs. Investors should have faith in the professional fund manager’s ability to book profits and cut losses. Financial planners believe it is not possible to time the markets for any investor. Hence, redeeming immediately after a new market high might be a flawed strategy.

c. Scheme not doing well from sometime

If your scheme seems to be under-performing for a while now, then you should try and look for reasons for under-performance. If the reason is something like a change of fund manager or drastic change to the portfolio mix – then you might consider fund redemption.

d. Unexpected financial crisis

To take care of unforeseen events, it is advisable to have some part of one’s portfolio invested in open-ended mutual funds. This ensures liquidity. One should avoid selling off funds that are built to meet a particular goal. And be mindful of the tax implications and exit loads that may apply to your mutual fund. In short, one should invest with a longer investment horizon to reap maximum benefits from flexible funds. The underlying aim of the investment should always be wealth creation, capital protection and appreciation. It is only these factors that should guide the redemption decisions as well.

5. How to Redeem on ClearTax

Mutual funds on the ClearTax platform can be easily redeemed in the following steps:
  1. Log in to the Cleartax mutual fund dashboard and select the specific mutual fund you want to redeem.
CT 22. After you select the specific fund you want to redeem, click on the arrow and select redeem. CT 3 3. On selecting redeem, you will be routed to the below screen. Select the appropriate options and proceed. CT 1  

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