Last Updated on Jul 30, 2024 by Anjali Chourasiya
Whether you are an active investor or a passive one, mutual funds are one such popular investment that facilitates you in both conditions. But how to withdraw money from a mutual fund? Well, mutual fund withdrawal is divided into two types (partial and full) and can be done in four different ways. In this article, let’s explore it in detail, along with things to keep in mind while redeeming a mutual fund.
Table of Contents
What does redemption from mutual funds mean?
Withdrawal is the process of liquidating your investments. In mutual funds, this process is called redemption. When you withdraw money from a mutual fund scheme, you essentially redeem the units. You sell the units that you own and realise their value at the applicable Net Asset Value (NAV).
For example, say you have purchased 10,000 units of a mutual fund scheme. You may redeem or sell a particular number of units or withdraw a particular amount in currency terms. Assuming each unit is priced at Rs. 10, if you want to withdraw Rs. 50,000, you would have to redeem 5,000 units from your mutual fund holding. Similarly, you can choose to redeem 100 units or 9,000 units and withdraw equivalent money from your mutual fund portfolio.
Types of mutual fund redemptions
There are two types of redemptions in mutual funds:
Partial withdrawal
Under this type, you withdraw money from mutual funds partially. This means that you redeem a part of the investment while the remainder remains invested. The above-mentioned illustration was an example of partial withdrawal wherein you withdrew Rs. 50,000 or a small number of units out of the total 10,000 units or Rs. 1 lakh that was available to you as part of your mutual fund holding.
Full withdrawal
A full withdrawal is when you completely sell off your mutual fund scheme, redeeming all the units in your mutual fund folio (a unique number assigned to an investment in a mutual fund scheme).
In this case, you withdraw all the money – your capital and any price appreciation the fund has experienced – and exit from the scheme. So, in the above example, if you had withdrawn the whole 10,000 units, it would have been a full withdrawal from the scheme.
How to withdraw money from a mutual fund?
Withdrawing money from a mutual fund scheme is quite simple. There are various ways to redeem your funds, as described below.
Through your broker or distributor
If you have invested in the mutual fund scheme through a broker or a distributor, you can withdraw through them. Approach your broker and place a withdrawal request. If you want to withdraw offline, you must fill up and submit a withdrawal request form. The broker would submit the form to the Asset Management Company (AMC).
On the contrary, if the broker has an online service through a portal or mobile application, you can redeem online too. Log into your mutual fund account, choose the withdrawal option, and specify the number of units that you want to withdraw. Your withdrawal request will be processed in real-time.
Through the Asset Management Company
You can approach AMC directly and redeem your mutual fund scheme. You can visit the branch office of the AMC and submit an offline request for withdrawal, or you can do so online. Just visit the official website of AMC or download its mobile application and request redemption.
After your request is processed, you will receive the amount either through offline mode (NEFT or cheque) or online mode, depending on the way you have chosen. Usually, the online mode is much faster; you get the amount in a day or two.
Through the Registrar and Transfer Agents
Registrar and Transfer Agents (R&T Agents) maintain records of every mutual fund transaction on behalf of the fund house. They help you invest in mutual fund schemes and also withdraw from them. You can withdraw through R & T Agents like CAMS and Karvy by placing an offline or online request.
Through your Demat and trading account
If you have invested in mutual fund schemes using a Demat and trading account, you can withdraw through these accounts as well. Log into your account to check your mutual fund investment, choose the amount that you want to withdraw and submit your request. Once the request is verified, the redemption will be processed, and the money will be credited to your linked bank account.
When to exit and redeem a fund
The right time to exit or redeem a mutual fund depends entirely on your financial goals. If you have a long-term goal and are invested in a mutual fund for the same (say 10-15 yrs), then regardless of the market conditions, you may stay invested in it for the long term. Hence, once you get close to realising your financial goal, you should consider redeeming the fund units, irrespective of the market state.
Things to keep in mind when withdrawing money from mutual funds
When you are withdrawing money from your mutual fund account, two main things should be considered:
The application of exit load on withdrawals
Some mutual fund schemes levy an exit load if you withdraw from the scheme within a specified time. For example, say a mutual fund scheme levies an exit load of 2% on redemptions within a year. In such cases, if you withdraw money within the first year of investment, you would have to pay the exit load on the withdrawn amount. Suppose the withdrawal amount is Rs. 1 lakh. You would get Rs. 98,000, subtracting from the exit load, on redeeming the fund. The exit load is applicable regardless of a partial withdrawal or a full withdrawal.
The tax implication of withdrawals as per Budget 2024
Mutual fund redemptions are subjected to tax if you earn profits from the transaction. Here’s how the tax liability is determined as per the new rules in the Union Budget 2024-2025.
- In the case of equity mutual funds, gains earned within 12 mth are called short-term capital gains. Such gains are taxed at 20%. On the other hand, gains earned after 12 mth are long-term capital gains. Such gains are tax-free up to Rs. 1.25 lakh, and gains exceeding the limit are taxed @12.5% without any indexation benefits.
- In the case of debt mutual funds, gains earned within 36 mth are called short-term capital gains. They are taxed at your income tax slab rates. However, gains earned after 36 mth are called long-term capital gains. They are taxed at 12.5% without indexation benefits. It means the entire gain is taxable without any adjustment for inflation.
The bottom line
If you are in need of money for immediate use, your mutual fund investments can be a quick source of funds. The advantage of mutual fund investments is that you may redeem them partially or fully, in unit terms or money terms. In that sense, mutual fund investments offer flexibility in terms of redemptions. Understand how to withdraw money from a mutual fund and then withdraw online or offline. However, do keep the exit load and tax implications in mind when redeeming your mutual fund units.
FAQs
What is exit load in mutual funds?
The exit load is a charge levied when you exit from the mutual fund scheme, partially or fully. Usually, mutual fund schemes charge an exit load on an early exit, i.e. exit from the fund within a specified time. If you stay invested for the stipulated period, it may be possible to escape the exit load.
How to find mutual funds with low exit loads?
You can easily find mutual funds with low exit loads using Tickertape Mutual Fund Screener. Follow the below-mentioned steps for the desired result.
– Go to the Mutual Fund Screener.
– Add the ‘Exit Load’ filter from the ‘Filters’ section.
– Sort the list from lowest to highest.
You can apply several other filters to get a customised list of mutual funds.
How to redeem a mutual fund?
There are four ways to redeem a mutual fund-Â
– Through your broker or distributor
– Through the Asset Management Company
– Through the Registrar and Transfer Agent
– Through your Demat and trading account
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
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