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Mutual Fund Redemption : How to Exit and Redeem Mutual Fund

Updated on: Jun 28th, 2022


7 min read

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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:

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.

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 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 necessarily consider redeeming their fund units, irrespective of the state of the market.

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.

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.

Through a trading or Demat account

If you had bought the mutual funds through 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.

Offline through an agent or distributor

Central services such as CAMS and Karvy also provide the facility 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.

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.

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.

When the markets are thriving

One should not sell just because the markets have touched new highs. You must not sell just because of the recent market developments that brought the NAV of mutual funds down. 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.

Scheme not doing well from sometime

If your scheme seems to be under-performing for a while now, then you should scrutinise the reasons for its under-performance. If the cause was something like a change in the objectives or a drastic shift in 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.

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. 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.

How to Redeem on the Black by ClearTax App?

By following the steps mentioned below, you can redeem the fund units on the Black by ClearTax app:

i) Visit the dashboard section by logging into your investment account on the Black by ClearTax app.

ii) Choose the fund whose units you’d like to redeem.

iii) If you want to redeem based on the amount, then select ‘redemption value’. If not, select e number of units you wish to redeem.

iv) A pop-up would appear asking you to confirm redemption, select the suitable option.

v) Once you confirm, we will forward your request to the respective AMC.

vi) AMC will process your request and credit the amount to your bank within the standard operating hours (depending on the scheme)

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