How and when you should make withdrawals from mutual funds

While it is important to look at multiple factors when investing in mutual funds, it is also equally essential to understand the withdrawal (also known as redemption) process.

Factors such as exit load and taxation play an important role in determining your net or final returns. Hence, one must understand how and when to make redemptions from mutual funds.

Factors to consider while redeeming mutual funds

Tax implications

According to the Income Tax Act, gains or profits made on mutual funds are taxed during redemption. In the case of equity-oriented mutual funds, if your withdrawal date is within a year of purchase, the gains will be taxed at 15%. This is called short-term capital gains tax. However, if you hold an equity mutual fund for more than a year, a tax of 10% would be levied on gains above ₹1 lakh. Meanwhile, returns on the debt mutual funds will be taxed as per an individual’s income tax slab.

Exit load

Exit load means the fees charged to an investor for partially or fully exiting a mutual fund scheme within a specific period. This fee is levied to discourage an investor from exiting a scheme in a certain period. The exit load differs from mutual fund to mutual fund.

Lock-in period

The lock-in period is the time frame within which the money can’t be withdrawn from a mutual fund scheme. For instance, equity-linked saving schemes (ELSS) have a lock-in period of three years from the date of purchase of the units.

How to withdraw money from mutual funds?

Withdrawing money from mutual funds is fairly straight-forward. Here’s how you can withdraw money from mutual funds.

Asset Management Company

If you have invested in a mutual fund, through the direct route, then you can redeem from an asset management company’s (AMC) app or website.

Registrar and transfer agent

You can also redeem your investments through a registrar and transfer agent (RTA). Depending on the RTA of your mutual fund, you can request an online withdrawal or visit the office.

Demat account

If you have invested money in mutual fund schemes through your demat account, then you must redeem units through the same account. After the redemption process is completed, the money will get transferred to your bank account.

Agent or distributor

If you have invested money through a distributor, you can place a request with him or her for the redemption of units. Following that, your distributor will send the request to the AMC office or RTA. Once the process is completed, the money will be sent to your bank account.

Can I withdraw money from mutual funds anytime?

You can place a request for redemption on any business day. Investors always have an option of redeeming their entire or partial investment. Usually, redemption is done when an investor’s goal or objective is met.

How long does it take to get the cash after placing the sell order?

Once the redemption request is placed, it typically takes three to four working days for the AMC to transfer money to your account.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.