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An ideal investment should always offer you a way out if you are not happy with its performance. Mutual Fund Redemption is a way to make a graceful exit. If the fund is not performing to your satisfaction, you can redeem the units you own. In this article, let us talk about 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

With over hundreds of funds in the market, it is often difficult to decide and pick the right mutual fund for an investor. Tracking the performance and deciding to sell off the units on time can be another roadblock for you. The fund manager invests this money in a wide array of assets – equities, debt securities, and other money market instruments. The ultimate aim is to deliver the highest returns possible to the investors. However, different mutual funds come with different rules and guidelines for entering, exiting, and redemption. Hence it is advised to keep these factors in mind before choosing a fund.

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 10-15 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 his/her financial goal time, he/she should consider selling the fund irrespective of the state of the market. Another reason for 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 finalised, redeem your mutual fund using any of the below methods.

a. Directly through AMC

If you have purchased a mutual fund directly from the Asset Management Company (AMC), then you can sell it off from their online portal itself. You can choose to sell some units or all as per your requirement. One can also conduct this process offline by visiting the AMC office. 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 you had bought the mutual funds through a Demat account or trading account, then you will have to proceed with the redemption through the same. Once the trading 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

In case you had purchased the mutual fund units via an intermediary, then you may proceed to sell your assets through the same entity. In short, the process involves filing a duly filled redemption form with the number of units to be redeemed. Once the request is processed, the money will be transferred to you via NEFT. You may also accept a cheque sent to your address.

d. Through registrar and transfer agency

Central services such as CAMS and Karvy also offer the option of redeeming mutual fund 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 rationally consider the following aspects before you redeem impulsively.

a. If AMC cannot deliver what it promised

Most of the people invest with a financial goal that commiserates with the fund objective. 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.

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 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 – then you might consider fund redemption.

d. Unexpected financial crisis

It is advised 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 may apply to your mutual fund. 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.

5. How to Redeem on ClearTax

You can easily redeem your mutual funds on ClearTax in the following steps: i. Log in to the Cleartax mutual fund dashboard and select the specific mutual fund you want to redeem. CT 2ii. After you select the specific fund you want to redeem, 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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