A mutual fund redemption request is the request to withdraw units (amount) from your mutual fund investments.
Things to consider while submitting a redemption request.
Mostly financial needs and sometimes our sentiments (fear) owing to certain market situations drive the redemption request. There are some essential things to keep in mind while submitting a redemption request:
Exit Load
Some mutual fund schemes carry an exit load. You, as an investor, have to be pay the exit load if you redeem the units before the specified period. Such exit load is levied on the redemption NAV, and accordingly, it directly impacts the overall portfolio returns. If the exit load window is nearing an end, it may be prudent to defer the redemption request up to that period, if possible, to protect the portfolio returns.
Lock-in period
Some of the mutual fund categories are subject to a lock-in period. For example, ELSS (Equity Linked Savings Scheme) funds are subject to a 3-year lock-in period. Similarly, solution-oriented schemes like a retirement fund or a children fund, mostly carry a lock-in period of 5 years or till retirement age or attainment of the majority age by the child as applicable. The investor cannot liquidate the investments until the lock-in period is over. Therefore, investors need to consider the lock-in period expiry when planning mutual fund redemption.
Holding period for taxation
You have to pay tax on the appreciations (gains) in your mutual fund investment only at the redemption of mutual funds units. The gains are classified as long-term capital gains (LTCG) and short-term capital gains (STCG) based on the holding period of such mutual fund units. There are different tax rates for LTCG and STCG from mutual fund investments. The tax rates for LTCG are generally lower than STCG to incentivise long-term investing by the taxpayers. It is advisable to defer redemption, if possible, until the gains become long term. Any savings on taxes directly impact the overall portfolio returns favourably.
The process of mutual fund redemption
After you have considered all the factors regarding redemption, it is now time to know how to proceed with it.
You can redeem a fund digitally (online – directly through the web portals of the mutual fund companies by submitting a redemption request form) or through a physical redemption request form or a letter at the local offices of the concerned fund houses. This request is acknowledged with a time-stamped confirmation. For online requests, you will receive transaction confirmation also over your registered email address and mobile number. Take the help of your mutual fund distributor for a hassle-free process of redemption.
The time of submission of the request is also important as there are cut-off times to process transactions. Transactions received before 3 PM are considered same-day transactions. If you submit the redemption request after 3 PM, your transaction will be processed on the next working day. You will receive the redemption amount in your registered bank account after deduction of the applicable STT and stamp duty, if any.
Note: Tax benefits and tax rates of financial products are not eternal but might change with time subject to prevailing tax laws. Though we strive to provide you with updated information, we do not claim correctness. There remain possibilities of error in numbers and conditions provided below owing to changes in tax laws. The tax provisions mentioned in this article are for illustrative purposes only. The tax rates for capital gains will be as per the tax laws applicable on the date of redemption. Please consult your advisor before investing.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional advice. While full efforts have been made to ensure the accuracy of data and numbers, no responsibility is taken for any errors or omissions. Tax implications on insurance, investments and returns from related products may change due to updates in tax laws. Always consult with your financial advisor or insurance expert before making any investment or insurance decisions. The author is not responsible for any financial losses or damages incurred as a result of relying on the information in this blog.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax, and financial implications of the investment/participation in the scheme.
