Basic steps to take at the time of MF units redemption

Today, it is as easy to redeem your investments in mutual funds as applying for investments. But at the same time, the Redemption of your money from mutual funds is as important a decision as when you decide on the most suitable investment plan. Just like when you decide the parameters for selecting a mutual fund scheme for your money, similarly, one must follow certain parameters before withdrawing the money from funds to avoid making any hasty decisions that can be regretted later. 

Here are a few advisable and general rules one must follow at the time of Redemption because a wrong decision can ruin years of financial planning.  

Focus on the financial objective: 

Why do we invest in mutual funds? It is to meet our financial objectives such as our children’s education, marriage, buying a house or retirement. These goals determine the amount of corpus that will be required at a future date. Ideally, one should try to stay invested as long as possible to realise the objective.

Avoid knee-jerk reaction to market fall: 

Time in the market is more important than timing the market. Mutual fund investments are effective in the long term when rupee-cost-averaging comes into play. This essentially means that your investment cost evens out any rise and fall in markets. Any panic reaction to withdraw the money because markets experience shocks should be avoided. Instead, take the advice of your mutual fund distributor on what should be done such as rebalancing your portfolio or considering asset diversification.

Check the applicable tax norms: 

Tax will be levied at the time of redemption on your mutual fund returns.  The tax is applicable on long term capital gains if the tenure of the equity funds has been over one year and short-term capital gains if the tenure has been less than one year. Also, many funds charge an exit load at the time of Redemption. Exit load is a fee charged by mutual funds at the time of partial or full Redemption of funds. The time period of charging the exit load and its quantum differs from fund to fund.

Check out the day of Redemption: 

The net asset value (NAV) of the units of a mutual fund scheme is generally calculated at the end of every business day. The settlement cycle in the case of mutual funds is usually two working days. So depending on how urgently you require the funds, ensure that no holidays/weekends fall in between. 

Check out the time for application of Redemption: 

The cut-off time for determining the day’s NAV is 3 pm. This means your application for Redemption of your mutual fund units should be registered with the concerned mutual fund house before 3 pm that day. This is important if you want to avail your units of that current day’s NAV. 

Taking care of these simple measures will ensure you can reap the potential benefits of your investments to your utmost satisfaction. 

These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may consult their financial advisors and/or tax advisors before making any investment decisions.

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