Mutual Fund Redemption- How to Redeem?
The most crucial part for any investor who is investing for the first time is knowing how to enter into the Mutual Fund Industry. They are excited and nervous both to start with Mutual Funds. That is definitely not a new thing for the investor who is investing it for the first time.
Sometimes they are well aware of how to enter the mutual fund but they don’t know about how to mutual fund redemption.
Many investors make their decision on the basis of sentiments, but what do you think that’s right? However , that is not the best way that investors think that because of the uncertainty of the market can carry some opportunities that might give you the return.
Thinking about the mutual fund redemption? When to redeem it? Let’s find out!
All About Mutual Fund Redemption
What an investor sells or withdraws the fund units for obtaining the return, it is called fund redemption. When an investor opts for the exit load from the mutual fund, there might be many reasons for that.
What Happens During The Redemption of Mutual Fund?
Fund Redemption allows to earn the capital gain whether directly or indirectly. It is further classified in Short Term Capital Gain i..e STCG and Long Term Capital Gain (LTCG), and hence taxed accordingly.
It also depends on the type of fund you are holding, which means Short Term Capital Gain and Long Term Capital Gain is different for equity mutual fund and debt funds, as the tax provisions.
While exiting from the mutual fund sometimes is not tough but you should have a knowledge when to invest and when to exit, the investor might have to pay an exit load along with other charges.
Moreover, it becomes necessary for the tax implication and other expenses
Tax on Mutual Fund Redemption
When mutual fund units are sold at the price higher than the purchase price, it is said to be the capital gain. And this is how investors earn capital gain.
It is further taxed according to the tax provision. We all know about the capital gain i.e. STCG and LTCG.
Different types of Mutual Fund schemes are available in the market.
So let’s discuss briefly about the mutual fund and capital gain
Capital Gain in Different Types of Mutual Funds
- Equity Mutual Funds
STCG: When the holding period is less than 12 months
LTCG: When the holding period is equal to or more than 12 months
- Debt Funds
STCG: When holding period is less than 36 months
LTCG:When the holding period is equal to or more than 36 months
- Hybrid Equity Mutual Funds
STCG: When holding period is less than 12 months
LTCG:When the holding period is equal to or more than 12 months
- Hybrid Debt Mutual Funds
STCG: When holding period is less than 36 months
LTCG:When the holding period is equal to or more than 36 months
How the Taxation Works Here?
| Type of Fund | STCG | LTCG |
| Equity Based Mutual | 15% on Total Gain along with CESS and Surcharge | No Tax Gains Upto 1 Lakh. Gains above that will be taxed on 10% along with CESS and Surcharge |
| Debt Funds | Taxed as per Income Slab | On total gains it is 20% including the CESS and surcharge. |
| Hybrid based Equity | 15% of the total gain along with CESS and Surcharge | No Tax Gains Upto 1 Lakh. Gains above that will be taxed on 10% along with CESS and Surcharge |
| Hybrid Debt Funds | Taxed as per Income Slab | On total gains it is 20% including the CESS and surcharge |
Cost of Mutual Fund Redemption
- Exit Load in Mutual Fund Redemption
Exit Load is a sort of fee that is charged by the investors at the time of mutual fund redemption. How do they calculate it? It is particularly calculated on the basis of Net Asset Value (NAV) of the total units.
It is charged for the specific period of time, the time when investors want to exit early.
For Instance: The ICICI Prudential Technology Fund Direct Growth charges your for the exit loan at 1% when the mutual fund redemption will take place within 15 days.
It indicates that if you exit after 15 days there will be no exit load charged on the gains.
How to Redeem Mutual Funds Online? Step-By-Step
There are many online platforms that are helping to invest in mutual funds easily. You can redeem the units of the fund through the same platform. It is a simple and easy process for buying and selling.
- Simply open the app/ or an online portal of the AMC/ investing platform
- Go to the Mutual Fund and select your fund
- Click on the redeem/sell/exit load
- Enter the amount or the number of units you wish to redeem
- Submit it
- The final return will be further calculatedafter the charges and fees
- Your account will be credited to the registered bank account
Reasons Why Investors Redeem Mutual Funds
In case if AMC is not delivered as per said, investors can redeem the fund. Since the investor invests the goal to achieve and when the performance of their investment is not at all helpful, they might think of mutual fund redemption.
It is quite genuine that everybody would have thought. It is quite obvious that investors might think of mutual fund redemption due to a financial crisis or other market situation.
Suppose you have invested in the mutual fund that targets the banking sector. However the news updates showed that the central bank has increased the repo rate which has definitely made a negative impact on the bank stocks, whereas it can be considered as good news to the IT Sector. You can choose to exit from banking and invest in the IT Sector.
Conclusion
Mutual Funds are one of the safest and high return giving investment instruments. Redeeming the mutual fund scheme is hassle free and effortless.
But you should have a proper knowledge about when, and why you should exit in mutual fund scheme.
