If you are planning how to redeem your mutual funds, you must consider the purpose or cause of the redemption. There is an opportunity cost involved in untimely redemption. If you continue with your scheme, it may provide higher returns in the future.
Market fall is a common cause among investors. If you invest for the long run, more units can be bought when the market is down rather than redeeming it entirely. In the long run, seeing off the bust and redeeming during the boom makes more sense. The investment objective should also be kept in mind, rather than opting for any knee-jerk reaction to prevailing market conditions. You should consider the following before redeeming your investments.
The tax liability varies depending on the type of your mutual fund investment. If you have an equity fund scheme that has been held for over one year, no long-term capital gains (LTCG) tax is imposed. However, if held for less than one year, 15% LTCG will be applicable. Other mutual funds attract a 20% LTCG with indexation benefits if it is held for more than 36 months. For short term capital gain on non-equity schemes, the tax will be applicable as per the income tax slab of the investor. Income taxes on mutual fund gains need to be paid by the investor and is not deducted by the asset management company.
There is a fee involved in the redemption of mutual fund investments. This is known as the exit load. The exit load differs from one mutual fund to another, and between schemes as well. The exit load is generally calculated as a percentage and depends on the units redeemed and the time of redemption. For instance, there is a 1% exit load on redemption of equity mutual funds within one year of the start of the investment. Most exit loads are applicable in the first few years of the investment. If the exit load is a significant amount, it is best to wait till you actually need to redeem your investment.
Type of investment
How you will be able to redeem your mutual fund units will depend on the type of investment as well. Close-ended schemes like the equity-linked savings scheme have a lock-in period, so if you have an SIP in ELSS, you may have to wait for the three-year lock-in period. A similar lock-in period may be applicable in the case of lump-sum investment made in a close-ended scheme. An open-ended scheme can be redeemed at any time, but you may have to pay an exit load in some schemes.
If you are clear about your plans to redeem in mutual fund, you should enquire your AMC about how to redeem your mutual funds. For mutual fund investment and trading, use an online apps like moneyfy app to check the performance of various mutual funds and choose the ones you want to invest in.