A guide to redeeming your Mutual Funds

When you put money into a mutual fund, you buy units of the fund. If you need your money back, you sell those units back to the fund. The amount of money you get depends on how much each unit is worth at that time.

What is Mutual Fund redemption?

Mutual Fund redemption refers to the process of withdrawing your investment from a Mutual Fund scheme. When you redeem your Mutual Fund units, the fund house buys them back at the prevailing net asset value (NAV).

Reasons for Mutual Fund redemption

1. Reaching financial goals

When your investment has achieved its intended financial target, it might be time to redeem your funds and use the returns to fulfil your goals. For instance, redeeming mutual funds can provide the necessary down payment for purchasing a home or cover tuition fees for higher education.

You might even decide to use the funds for a dream holiday, creating cherished memories without financial strain. Large purchases like buying a car or renovating your home can also be facilitated through mutual fund redemption.

2. Financial emergencies

Unexpected situations such as medical emergencies, job loss or urgent financial needs may necessitate the liquidation of mutual fund investments. Health crises can incur significant costs, making the redemption of mutual funds a vital financial resource. In the event of job loss, redeeming mutual funds can help cover living expenses and provide a financial cushion until new employment is secured.

When considering how long it takes to redeem mutual fund assets, it's important to note that it can vary but typically completes within a few business days, allowing for timely access to funds when needed.

3. Poor fund performance

If your mutual fund persistently lags behind its peers, it might be wise to shift your investment. Evaluating performance involves looking at the fund’s returns relative to its benchmark index and peer group over various time periods.

Repeated underperformance might indicate poor management or unsuitable investment strategies. By redeeming and reallocating your investment to better-performing funds, you can optimise your portfolio's returns and ensure alignment with your financial objectives.

4. Market volatility

Sudden market changes might make you redeem funds. It’s important to assess whether the volatility is temporary or indicative of a long-term trend. Market volatility often results from economic events, political developments, or changes in investor sentiment.

While it can be tempting to redeem funds during market downturns, it's crucial for you to consider the potential for recovery. If the volatility signals a fundamental shift in market conditions, it might be prudent to redeem and reinvest in more stable opportunities.

5. Shifting investment strategy

Changes in personal investment strategies, such as moving from aggressive to conservative investments, can prompt the redemption of mutual funds. As you approach different life stages or reassess your risk tolerance, you might decide to adjust your investment mix.

You might prioritise growth through aggressive equity funds if you are young, while when nearing retirement, you might prefer the stability of debt funds. Redeeming mutual funds to reallocate assets ensures that the investment portfolio aligns with your current financial goals and risk preferences.

Types of redemption

1. Unit-based: Specify the number of units you wish to redeem. The redemption amount depends on the number of units and the NAV. This method is useful if you want to maintain a certain number of units in your investment while withdrawing some of your funds.

2. Amount-based: Specify the amount you want to redeem, and the corresponding units are calculated based on the NAV. This approach is ideal if you have a specific amount of money you need and want to withdraw that precise sum from your investment.

3. Redeem all: Liquidate your entire investment from the mutual fund scheme. This type of redemption is suitable when you want to exit the investment completely, either due to meeting your financial goals or reallocating funds elsewhere.

4. Systematic withdrawal plan (SWP): Set up a periodic withdrawal plan to receive a fixed amount regularly from your mutual fund investment. SWP is beneficial if you need a steady income stream from your investments.

How to redeem mutual funds?

I. Online through a mutual fund platform

Log into your mutual fund account on the respective platform. Select the fund you wish to redeem and choose the redemption option. You will then need to enter the number of units or the amount you want to redeem. After verifying the details, confirm the transaction to complete the process. The redeemed amount will be credited to your linked bank account.

 

II. Directly via AMC or distributors

You can easily redeem your mutual funds directly through the Asset Management Company (AMC) or via a distributor. Simply visit the AMC's website or get in touch with an authorised distributor, provide your folio number, and the amount or number of units you wish to redeem. Submit your request, and within a few business days, the funds will be credited to your registered bank account.

 

III. Registrar and transfer agencies

Registrar and transfer agencies like CAMS and KFinTech facilitate mutual fund redemption. To redeem through them, you can either fill out and submit the redemption form online or visit a branch in person. Provide the required information, such as your folio number and the specific details of the redemption, and the agency will handle the rest.

IV. Automatic withdrawal plan

If you are looking for a systematic approach, setting up a systematic withdrawal plan (SWP) with your mutual fund house is an excellent option. An SWP allows you to automate periodic redemptions, providing you with a fixed amount regularly from your mutual fund investment.

Also Read:What is a Mutual Fund switch?

Conclusion

Understanding mutual fund redemption is crucial for effectively managing your investments. Whether you're redeeming due to reaching financial milestones, facing emergencies or reallocating assets, knowing the process and timing is key.

Axis Bank’s comprehensive mutual fund services are designed to streamline your investment journey. Make informed decisions and achieve your financial objectives with efficiency and ease!

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.

Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.