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Redeeming Mutual Funds: Why, When and How?

Redeeming Mutual Funds: Why, When and How?

Perhaps the most crucial concept any first-time investor entering the mutual fund (MF) industry should learn is when and how to make a graceful exit. Choosing the right time to exit a scheme is a critical decision that requires extensive research.

Often, investors make this decision based on their sentiments if they feel a fund is underperforming or the market is too unstable. However, that’s not the best way to go about it. That’s because even uncertain markets can carry some opportunities that might give good returns. So, what is the right time to redeem MFs and how to do it? Let’s find out.

What is mutual fund redemption?

When an investor sells or withdraws their fund units to obtain returns, it is called mutual fund redemption. Simply put, it is the act of exiting an MF scheme and redeeming the units you hold. Redeeming mutual funds provides you with an exit route from the investment and gives you the present value of the investment in terms of monetary returns.

You can either redeem units in parts or exit fully. There are 3 major types of redemption you can opt for:

  1. Unit-based redemption
  2. Amount-based redemption
  3. Redeem all

Additional Read - What kinds of investors should opt for mutual funds?

When to redeem a fund?

Picking the right time to redeem an MF is essential. And it all comes down to the investment goals of the investor. You might have invested in a SIPfor 10 to 15 years to fund your child’s education or for a short-term goal like purchasing a car. So, once you get closer to fulfilling your financial goal, consider redeeming the fund units.

Here are a few other valid reasons to redeem your fund units:

  • Financial crisis
  • When the market is high
  • Change of strategy by the fund house
  • When the MF scheme is underperforming

How to redeem mutual funds?

The redemption process is simple, depending on the type of MF you hold. You can perform mutual fund redemption online or offline by generating a redemption request. The process can take 5 days or more to get the amount credited to your bank account. Here’s how the online process works:

Step 1: Visit the official website of the fund.

Step 2: Choose the online transaction option on the website and log in using your folio number or your PAN.

Step 3: Next, choose your scheme and the number of units you wish to redeem.

Step 4: Lastly, confirm your transaction.

If you want to go the offline route, you will require a redemption request form. Once you have filled the form, sign it and submit it to the asset management company (AMC) or designated office of the registrar.

Additional Read -What Are Instant Redemption Funds?

In a nutshell

To be a financially sensible investor, you must know when to redeem your MF units. After all, exiting an investment is as critical a decision as entering it. Thus, you require heavy research and a proper evaluation to make this decision.

To make your investment journey easier, download the Moneyfy app by Tata Capital and manage your investments without stepping out of your house!

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