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A mutual fund consists of a pool of money from different investors invested in a wide array of assets. Such as debt, equity, money market instruments or government securities with an aim of generating capital gains. A mutual fund serves as a very useful instrument for an investor aiming to grow her wealth.

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 decide which funds to sell off and when.

Reasons for Mutual Fund Redemption

Most of the people invest with a financial objective. This objective plays an important role in finalizing what funds they decide to include in their portfolio. However as an active investor tracking the market, many a times the long-term outlook might seem negative and one might be tempted to sell off or redeem one’s mutual fund units.

In such situations one should rationally consider the following aspects before redeeming impulsively:

  • New Market Highs:

    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 profits for the investor. Financial planners believe it is not possible to time the markets for any investor and, hence, this might be a flawed strategy.

  • 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. The fact that a fund manager is changed or the portfolio mix of the fund has undergone a drastic change might be good reasons to contemplate redemption of funds.

  • Urgent Need of Money:

    To take care of unforeseen events it is advisable to have some part of one’s portfolio invested in open-ended mutual funds that enjoy liquidity. One should avoid selling off funds that are built to meet a particular goal. One should also be considerate of the tax implications and exit loads that might be applicable.

When to go for Mutual Fund Redemption?

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.

How to redeem Mutual Funds?

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

  • 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. Once the request is processed, one might 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.

  • 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. Once the trading process is completed, an electronic payout (NEFT or IMPS) is made against the redemption request into the same bank account that is registered with the Demat account.

    • Offline through an Agent:

If an investor had purchased the mutual fund units via agent then she 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 the request is processed, money is credited via NEFT or through a cheque sent to the registered address.

  • CAMS (Computer Age Management Services):

    Some central services likes CAMS offer the option of redeeming mutual fund bought from several AMCs. A redemption form may be downloaded and post filling and signing, it may be submitted at any CAMS office.

While mutual fund investments are flexible, one should invest with a long term horizon to reap maximum benefits. 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.

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