What is redeeming of mutual fund ?

Redemption involves meticulous research about the performance of the fund and clarity about the reasons for redemption. Investors often make such decisions based on sentiment. If the market is uncertain or their fund is underperforming, a reflex action is to redeem units. This might not be the best thing to do.

Ideal Situation

One must understand that even uncertain markets can present opportunities for earning good returns. In addition, unlike index funds, other mutual funds do not always follow the benchmark index. In fact, their performance is a function of the specific underlying securities.In addition, mutual funds are managed by professional fund managers who take proactive decisions and try to factor-in the perceived market movements. However, if a mutual fund scheme is consistently underperforming for a very long period (vis-a-vis its benchmark) one may choose exit.

Ways of redeeming mutual fund :-

1. Redemption if purchased through the AMC or Distributors
The most common route for investing in mutual funds is through the AMC (direct) or through a distributor. In order to redeem funds through offline modes, you need to send a duly signed redemption request to the AMC's or the distributor's office.
A standard redemption form asks for details like your name, folio number, plan and scheme details, and number of units you wish to redeem. In addition, all the holders have to sign the slip. The proceeds from the redemption will be credited to the registered bank account.

2. Redemption if bought online
Mutual funds can also be purchased online. Such units can be redeemed online through a trading account or the AMCs website. You simply have to log in, select the fund and the number of units you wish to redeem and confirm your order.
In addition, central service providers like CAMS (Computer Age Management Services Pvt. Ltd.), Karvy, etc. offer the option of redeeming mutual fund bought from several AMCs. You can download the form online or visit the nearest office. Please note that these agencies might not service all the AMCs.

Few points to remember :-

1. Applicable NAV
The time of the day when your redemption request is received is crucial because the NAV (Net Asset Value) for each day is declared after the close of trading on that day. However, the NAV will be applicable only for redemption requests received up to 2 pm on any day.

2. Turnaround Time
Once the redemption request is successfully received and verified, it takes up to three working days for the proceeds to be credited to the registered bank account.

3. Funds With Lock-In Period
Unlike the units of a close-ended scheme, open-ended schemes can be redeemed anytime. Schemes like Equity Linked Savings Scheme (ELSS) cannot be redeemed up to 3 years from the date of investment.

4. Exit Loads and Applicable Taxes
Based on the duration after which you are redeeming the funds, your transaction might attract certain amount of taxes and exit loads. Inquire about the same before finalizing a transaction.