An increasing number of people are investing in various mutual fund schemes in India, leading to a significant rise in the investments of these funds.
Along with investments, redemption (withdrawal of funds) also takes place in these funds when an investor needs funds, meets an investment objective, or requests a change in financial plan.
Mutual fund clients can redeem their mutual fund units online or offline. Redemption sells mutual fund units to the asset management company (AMC), which manages the fund.
The funds from redemption are usually credited to the investor’s bank account linked to the mutual fund account within 3-4 working days.
It’s important to note that some schemes like ELSS (Equity Linked Savings Scheme) have a lock-in period of 3 years, during which there is no option to redeem.
Redemption timing is crucial as market indices fluctuate daily. Fund houses determine the Net Asset Value (NAV) daily based on the cut-off time, usually at 3 PM for most mutual funds.
Clients can log on to the mutual fund house website using their folio number/PAN and make redemption requests for online redemption.
Similarly, those who have purchased mutual fund schemes through an individual demat/trading account can log on to the financial institution’s official website or app to initiate the redemption process.
For offline redemption, investors must visit the fund house office on any working day, fill out the redemption form, and submit it. After the redemption request is processed, the proceeds are credited to the specified bank account.
The time it takes for the redemption amount to be credited to the bank account varies depending on the type of scheme. A 15% short-term capital gain (STCG) tax applies if the redemption period is less than one year.
Long-term capital gain (LTCG) tax is applicable at 10% if the investment period is over one year. There may also be an exit load of 1% if the investment is redeemed before completion of one year.