Jan 17, 2017 3 min read

Planning to Redeem Your Mutual Funds? You Must Know This!

Redemption of funds needs to be done with effective consideration. Read this blog to know the parameters which are needed to be taken into account while redeeming mutual funds.
Do you want to redeem your mutual fund investments? Are you looking for redemption immediately? If yes, then you are at the right end. Every decision where money matters are involved needs to be taken with due care. Generally, the investors redeem their funds without gaining a better knowledge of the market and then bear heavy losses. Yes, the way investment decisions require analysis and research, the redemption decisions also need to be taken after evaluation.

Investors choose mutual fund programmes after going through a processed analysis and evaluation on the basis of the star rating and past returns. The investments are made to achieve a certain financial goal after considering various market moves, and thus the investors stay calm even during the market swings. The investors are told about various aspects to take into consideration while making a mutual funds investment plans online or offline, and very little information is provided for making better redemptions. Here we have provided the four basic parameters which must be taken into account while redeeming mutual fund investments.

1. Lock-in Period

Certain schemes have a lock-in period between which investors are not allowed to redeem funds to avail the benefits. Like in the case of ELSS mutual funds, there is a lock-in of three years due to which the investors gain tax exemption under section 80C. So first and foremost you must evaluate if your funds have a lock-in period. If the schemes are open-ended, they can be redeemed as and when required but for close-ended funds, redemption is allowed once the lock-in period expires or matures.

2. NAV Applicability

Moreover, the NAV applicability is subject to the date and time at which the application for fund redemption has been submitted. The applications received in the stipulated time period are redeemed at that day’s NAV, else the NAV of the next working day is applicable. So one needs to keep in mind that if you want to redeem your funds at current day’s NAV, then you will have to apply for redemption before the stipulated time of that day which is 1 p.m. as of now.

3. Taxation

The returns earned by the investors on their mutual fund investments are entitled to pay capital gain tax. The tax liability is based on the tenure of investment, where long-term capital gain attracts less tax as compared to short-term capital gains. Equity mutual funds are exempted from capital gain taxes if the investments are held for a minimum period of 12 months. In the case of non-equity investments, the capital gain attracts taxes at the rate of 20% with indexation benefit help for a minimum period of 36 months. In case the fund is redeemed before 36 months, the income or capital gain is covered by the individual’s tax slab. Hence, prior to redeeming the funds, one must evaluate what shall be the applicable taxes and how he/she can save on them by postponing the redemption for a certain period.

4. Exit Load

All mutual funds charge an exit load as per the nature of the fund and various other parameters which are applicable at the time one redeems the fund. Exit loads are generally charged in cases when the holding period of the mutual fund scheme is not achieved by the holder. Most of the equity schemes have an exit load for a longer duration as compared to the debt funds because they are meant for providing capital benefits in the long run. So one needs to measure the applicable loads as well while redeeming the funds so as to save extra cost.

Before you start your redemption process, you must evaluate these parameters above so that you achieve success in your redemption and avail the maximum gain or profits. You would be entitled to earn better benefits without losing your hard-earned money in any way.

My SIP Online is the perfect destination for those who are looking for taking planned decisions in terms of investment or redemption of their mutual fund plans. You must get associated with us to avail the maximum benefits and gain superior profits on your income. To get assistance or any advice for investment, you must avail our financial advisory services free of cost.