6 Rules to Keep in Mind When Redeeming Mutual Funds

Investing in mutual funds is an attractive option for investors for multiple reasons. Mutual funds are less risky than stock markets yet offer considerable rewards. Some mutual funds offer tax benefits. Thirdly, they are easy to liquidate, especially in an emergency.

When redeeming mutual funds, it is important to keep some ground rules in mind. This will help you get the best returns for your investments.

1. Redeem for the Right Reasons

Align mutual fund investments with your financial goals. Once your investment appreciates in line with your financial goals, like buying a house or paying for education, mutual fund redemption is a natural progression.
Here are some reasons why you should withdraw money from your mutual funds:
• The mutual fund is not performing too well, and you find a better investment option.
• You have credible information that the fund is in trouble and may shut down.
• You have an emergency and have maxed out your rainy day fund.

2. How to Redeem Your Mutual Funds

If you buy mutual funds via an online Demat platform, it takes just a click of a button to get it done. You can also do it via AMC's website, in case you have bought directly from the fund house. If you have a financial advisor, then it can be routed via your financial advisor.
The amount withdrawn will depend on the number of units you redeem and their value on the day of the redemption. It will be in your bank account in 24 to 48 hours.

3. Plan Your Mutual Fund Redemption

Unless due to an emergency, mutual fund redemption must be an intentional and carefully planned operation. There are several factors to be kept in mind based on the type of mutual funds, as well as the specific terms and conditions of the mutual fund of your choice. For example, the rules of redemption equity-based funds would be different from debt-based funds.

4. Never Redeem Because Markets Are Down

When the markets are down, it is natural that the value of your mutual fund investment will also diminish. But panic withdrawals are a bad idea and can lead to losses, which you cannot recover.
Staying invested is the right thing to do until the markets go up again. Of course, if the value is crashing because the specific fund house is in business trouble, then you might want to make an informed decision and consider withdrawal.

5. Know the Capital Gains Rules

Mutual fund redemption also impacts your taxes. For instance, for equity-based mutual funds that offer a tax benefit, a holding period of up to one year will yield short-term capital gains (STCG), which are taxed at 15%. On the other hand, long-term capital gains (LTCG) are tax-free on equity funds up to INR 1 lakh.

Redemption of the equity fund exceeding INR 1 lakh after one year is taxable at 10% sans indexation advantage.
In the case of debt funds, a holding period of up to 3 years is considered as short-term, and beyond 36 months as long-term. The former attracts tax rates as per tax slab, while the latter attracts a tax rate of 20%.

6. Know the Exit Terms and Conditions

When deciding to invest, make sure you understand the terms and conditions for redemption.
For instance, you may have wondered before: what is an exit load in mutual funds? Some funds levy a penalty known as exit load if, say, you redeem units before a specific period of time, say, three months. This can vary across funds.

To know more about what is exit load in mutual fund, visit: https://www.mutualfundssahihai.com/en/what-are-loadsrnIn Closing

Premature withdrawal without a good reason will eat into your earnings. Hence, it is advisable to plan your mutual fund redemption strategically to get the best returns.

For more info on mutual fund redemption, visit: https://www.mutualfundssahihai.com/en/how-do-i-withdraw-my-money-mutual-funds