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Mutual fund redemption is a way to make a graceful exit. If you feel like exiting the mutual fund scheme, then you can redeem the units you hold. We have covered the following in this article:

  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

Mutual fund redemption is how the investors sell their fund units. However, if there is an exit load, then the investors necessarily pay it on redeeming their units. When investors redeem their units, they earn taxable capital gains. The taxability of capital gains depends on the type of fund and the period of holding. Here, investors should mandatorily consider all the expenses that they would incur on redeeming their units.

2. When to exit and redeem a fund

The right time to sell or redeem mutual funds depends on investors’ financial goals. One might be invested in a mutual fund for ten years to fifteen years to purchase a house or finance their child’s wedding. In some cases, it could also be a short-term goal, such as buying a car or an appliance. Once an investor gets close to realising his/her financial goal, then he/she should consider redeeming their fund units irrespective of the state of the market.

3. How to redeem mutual funds

Once the reason for redemption is apparent and finalised, then you can redeem your mutual fund units through any of the following methods.

a. Directly through AMC

If you have invested in a mutual fund directly with the asset management company (AMC), then you can redeem using their online portal. You can choose to sell some units or all as per your requirement. One can also redeem units offline by visiting the AMC office. After your request is processed, you will receive the redemption amount via NEFT or through a cheque sent to the registered address. Usually, the online mode is much faster, in which the amount gets credited in a day or two.

b. Through a trading or Demat account

If you had bought the mutual funds through a Demat account or trading account, then you will have to redeem your units through the same account. Once the process is completed, an electronic payout (NEFT or IMPS) against the redemption request will be made. The amount will be credited to the same bank account registered with the Demat account.

c. Offline through an agent or distributor

Central services such as CAMS and Karvy also offer the option of redeeming mutual funds bought from several AMCs. Download a redemption form, and submit the duly filled and signed form at the nearest CAMS office.

d. Through registrar and transfer agency

Central services such as CAMS and Karvy also offer the option of redeeming mutual funds bought from several AMCs. Download a redemption form, and submit the duly filled and signed form at the nearest CAMS office.

4. Why do investors redeem mutual fund?

An investor may have numerous reasons to invest or sell fund units. It is advised to consider the following aspects before you redeem impulsively rationally.

a. If AMC cannot deliver what it promised

Individuals invest in those funds whose objective in line with theirs. So, this objective plays a vital role in finalising 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. However, as per a CRISIL report, the chances of a fund providing excellent returns increase when invested with a long-term horizon.

b. When the market is high

One should not sell just because the markets have touched new highs. Investors should have faith in the 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 not be a good idea.

c. Scheme not doing well from sometime

If your scheme seems to be under-performing for a while now, then you should try scrutinising the reasons for its under-performance. If the reason was something like a change in the fund manager or a drastic change to the portfolio mix (which is not in line with your objectives) – then you might consider fund redemption. However, one should not redeem considering a fund’s recent performance. Investors should consider staying invested for as long as possible to reap the maximum returns on their investment.

d. Unexpected financial crisis

It is advisable to have some part of one’s portfolio invested in open-ended mutual funds to avoid any unforeseen events. This ensures liquidity. One should avoid selling off funds that are built to meet a particular goal. Also, be mindful of the tax implications and exit loads that apply when redeeming your mutual fund units. 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. Do not let any other factors guide the redemption decisions. In short, one should invest with a longer investment horizon to reap maximum benefits from flexible funds. Therefore, the underlying aim of the investment should always be wealth creation, capital protection and appreciation. Do not let any other factors guide the redemption decisions.

5. How to Redeem on ClearTax

You can easily redeem your mutual funds on ClearTax in the following steps: i. Log in to your ClearTax mutual fund dashboard and select the specific mutual fund you want to redeem. CT 2ii. After you choose the fund, click on the arrow and select redeem. CT 3 iii. On selecting redeem, you will be routed to the below screen. Select the appropriate options and proceed. CT 1  

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