How Do I Withdraw Money From Mutual Funds Easily?

Investing in mutual funds is a popular choice for many, and there is abundant information available on how to go about the process. However, there may come a time when you want to withdraw money from these investments. Knowing how to redeem funds from a mutual fund is just as important as knowing how to invest, so that you can access your money if the need arises. It is equally important to know what factors to consider before making withdrawals, to ensure that your investment strategy does not deviate from your goals.

In this article, we’ll take a closer look at the process of redeeming mutual fund units and what to bear in mind when making a withdrawal.

Table of contents

1. Understanding mutual fund withdrawals
2. Types of withdrawal of mutual funds
3. How do you withdraw money from mutual funds online?
4. Types of mutual fund redemptions
5. Significance of cut-off time
6. Factors to consider while submitting a mutual fund redemption request
7. How much time does redemption take?
8. Are there any costs when redeeming mutual funds?
9. Alternatives to mutual fund withdrawal – What else can you do?
10. Tax implications on mutual fund withdrawal

Understanding mutual fund withdrawals

Before we get into the steps involved, it’s important to understand how to withdraw money from a mutual fund. The mutual fund withdrawal process is called redemption. You can withdraw either a part of or all the money invested in a fund. When you redeem units from mutual funds, you essentially sell your units back to the fund. The money you get is based on the applicable Net Asset Value (NAV) of your mutual fund depending on the time that you place your redemption request.

When understanding how to withdraw a mutual fund amount, it is important to be aware of any charges involved, such as exit loads. This is a fee charged by the fund if you redeem your units before a specified period. Not all mutual funds have this fee, but it’s important to be aware of it when you initiate a mutual fund withdrawal.

Types of withdrawals from mutual funds

Mutual fund investors can withdraw their money in different ways depending on their liquidity needs and investment goals. The most common types of withdrawals include:

• Lumpsum withdrawal: Redeeming a fixed amount.
• Partial redemption: Withdrawing only a portion of the invested amount while keeping the remaining units invested.
• Full redemption: Redeeming all units held in the mutual fund scheme.
• Systematic Withdrawal Plan (SWP): Withdrawing a fixed amount at regular intervals (monthly/quarterly), while the remaining corpus stays invested.
• Maturity withdrawal (for closed-ended funds): Withdrawal happens automatically when the scheme reaches maturity, as per scheme terms.

Before withdrawing, investors should check for applicable exit loads, tax implications, and the potential impact on long-term financial goals.

How do you withdraw money from mutual funds?

There are several ways to withdraw money from your mutual funds. Let’s look at each of the methods in detail.

a) Through the Asset Management Company (AMC)

You can redeem funds directly through the AMC that manages your mutual fund investment. The steps that are typically involved are listed below. However, the exact procedure may depend on the AMC.

1. Visit the AMC’s website or branch: You can either go online to the AMC’s website or visit their office.
2. Log in to your account: If you’re doing it online, then you can log in using your credentials to access your mutual fund investments.
3. Select the fund for redemption: Choose the fund that you wish to redeem units from.
4. Enter the redemption details: Enter the redemption amount or number of units you want to redeem.
5. Confirm and submit the request: Review the details and confirm your redemption request.

The redemption amount will be deposited into your registered bank account.

b) Through the Registrar and Transfer Agent (RTA)

You can also withdraw your money with the help of the Registrar and Transfer Agent (RTA) of the mutual fund. The RTA manages the records of investors on behalf of the AMC.

1. Identify the RTA: Find out who the RTA is for your mutual fund (such as CAMS or KFintech).
2. Fill out a redemption form: Visit the RTA’s website or office, download the mutual fund redemption form and fill in the required details like your folio number, the scheme name, and the amount or units to redeem.
3. Submit the form: Submit the form either online or at a nearby branch of the RTA.

Once processed, the amount redeemed will be credited to your registered bank account.

c) Through a broker or distributor

If you have invested in mutual funds through a broker or distributor, you can initiate a withdrawal through them. These are the steps that may be typically involved:

1. Contact your broker: Reach out to your broker or distributor and inform them of your need to redeem mutual fund units.
2. Provide necessary details: Share details such as the scheme name and the amount or number of units you wish to redeem.
3. Broker initiates the process: The broker will take care of the paperwork and initiate the redemption process on your behalf. However, this process will get completed on necessary approval from the investor for the redemption request.

The money will be transferred to your bank account after the request is processed.

d) Through your trading and DEMAT accounts

If you have invested in mutual funds through a trading and DEMAT account, you can redeem units through the same platform.

1. Log in to your trading account: Start by logging into your online trading account where you initially purchased the mutual fund units.
2. Go to the mutual fund section: Go to the section that lists your mutual fund holdings.
3. Select the fund: Choose the mutual fund from which you want to withdraw money.
4. Place the redemption request: Enter the number of units you wish to redeem or the amount of money you want to withdraw.
5. Confirm your request: Once you’ve entered the details, confirm your redemption request.

The money will be credited to your bank account linked to your trading account, typically within a few days.

Significance of cut-off time

When placing a redemption request, investors must factor in the cut-off time. The Net Asset Value (NAV) you get for your units depends on the time at which you place the redemption request. A scheme’s NAV can change day-to-day as it is based on market value of the underlying securities. The cut-off time for redemption requests is 3 pm on business days. If the request is received by the Asset Management Company (AMC) that runs the scheme before 3 pm, investors will be able to redeem units at the same day’s NAV. For redemption requests placed after 3 pm, the next day’s NAV will be applicable. Thus, planning the mutual fund withdrawal time is important.

Read Also: Steps To Redeem SIP Investments

Factors to consider while submitting a mutual fund redemption request

When you’re about to withdraw money from your mutual funds, there are a few important factors to keep in mind:

1. Reason for redemption: It is best to stay invested till you potentially reach your goals. Hence you should only redeem units if you have a pressing need for funds that cannot be met through other avenues.
2. Choosing the scheme: If you have more than one mutual fund investment, consider which scheme you want to redeem from. For instance, a debt fund may be a better option if you are withdrawing money before reaching your goal amount, because equity funds offer more long-term growth potential.
3. Exit load: Check if your mutual fund charges an exit load. This fee is deducted from your redemption amount if you sell your units before a certain period.
4. Tax implications: Redemption of mutual funds can lead to tax liabilities. Capital gains are taxable and the rate depends on the type of scheme and the holding period. For equity funds, capital gains exceeding Rs. 1.25 lakh on units held for more than a year at taxed at 12.5%. Gains on units held for less than a year are taxed at 20%. For debt funds, capital gains are added to the investor’s annual income and taxed as per their income tax slab, regardless of the holding period.
5. NAV fluctuations: The amount you get depends on the NAV applicable at the time you place the redemption request. The NAV fluctuates daily, so your redemption amount may vary slightly from your expectations. Also, if your need for funds is not urgent, you may consider putting off the redemption request if the markets are down and NAV is lower.
6. Processing time: The time it takes for the money to reach your account can vary based on the asset management company and the scheme. Some schemes may offer instant redemption, while others may require you to wait a few business days.
7. Partial redemption: If you don’t want to withdraw all your money, you can opt for a partial redemption. This allows you to redeem only a portion of your units and keep the rest invested.

Read Also: Penalties for withdrawing mutual fund investments prematurely

How much time does redemption take?

To figure out how long your mutual fund redemption will take, you need to understand the type of mutual fund you hold. Once you know this, you can place a request for redemption. Then, the fund house will process it and credit the amount to your registered bank account.

The precise redemption timelines may vary from one Asset Management Company (AMC) to other. For equity and hybrid mutual funds, the payout usually follows a T+2 cycle at Bajaj Finserv AMC. This means the money is typically transferred to your account two working days after the transaction date (though delays may occur in some circumstances). For debt funds, the redemption timeline is typically T+1 day. For overnight funds and liquid funds, an insta-redemption facility is offered for up to Rs. 50,000 or 90% of your total corpus, whichever is lower.

It is important to note that redemption timelines do not account for weekends or public holidays, which can cause delays. Therefore, it is advisable to plan your redemptions in advance to ensure you receive your funds when needed.

Are there any costs when redeeming mutual funds?

While the AMC does not levy any charge on the redemption itself, an exit load may be applicable for some funds if units are redeemed before a specified period. This could be a week, six months, a year etc depending on the fund category and other considerations.

Secondly, investors may have to pay taxes on the redeemed units if they have earned profits. The tax rate is as follows:

For equity-oriented mutual funds (more than 65% in domestic equities):

• Short-term capital gains tax (STCG) is levied on profits from units held for less than a year. The tax rate is 20%
• Long-term capital gains tax (LTCG) is levied on profits from units held for more than a year. The tax rate is 12.5% after an exemption on gains of up to Rs. 1.25 lakh in a financial year.

For debt-oriented mutual funds (less than 35% in domestic equities):

All gains are deemed to be STCG and taxed at the investor’s prevailing slab rates.

Reviewing the Scheme Information Document (SID) and considering tax implications can help investors avoid unexpected costs.

Read Also: Penalties for withdrawing mutual fund investments prematurely

Alternatives to mutual fund withdrawal – What else can you do?

Instead of fully withdrawing from mutual funds, you may consider these alternatives to maintain growth potential while accessing funds or optimising taxes.

• Switch schemes: Transfer your investment to another scheme within the same AMC, such as moving from equity to debt. This is treated as a redemption for taxation purposes and may attract exit load, but it keeps the money invested.
• Systematic Withdrawal Plan (SWP): Withdraw a fixed amount at regular intervals (monthly or quarterly) at the prevailing NAV, while the remaining corpus continues to stay invested.
• Partial redemption: Redeem only the required amount instead of the entire investment, allowing the remaining units to continue participating in market movements.
• Park funds in short-term options: If funds are needed temporarily, you may consider options such as bank fixed deposits or liquid funds for short-term parking, depending on your liquidity needs and risk profile.

Tax implications on mutual fund withdrawal

Mutual fund redemptions trigger capital gains tax based on holding period and fund type. There is no tax on the principal, only profits are taxed.

The rates above are base rates and exclude applicable surcharge and cess.

Conclusion

Whether you choose to redeem through your trading account, an RTA, a broker, or directly through the AMC, each method is designed to ensure that you can access your funds quickly and easily. It’s important to consider factors like exit loads, taxes, and NAV fluctuations when making your decision. Moreover, the decision to redeem units must be taken after considering your investment goals and plans.

FAQ

Can I take money out of my mutual fund at any time?

Yes, you can withdraw money from your mutual fund at any time. However, some schemes may entail an exit load if you withdraw before a specified period. Additionally, capital gains may be taxable.

How much time does it take to handle a redemption request for a mutual fund?

The duration depends on the scheme. Some schemes may offer instant redemption, while others may require 3 business days.

Does redeeming a mutual fund come with any costs?

Redeeming a mutual fund may come with costs like exit loads if you withdraw before a certain period. Additionally, taxes may apply based on your holding period and the type of mutual fund.

Can I partially redeem my mutual fund units?

Yes, you can redeem a part of your mutual fund units. You just need to specify the number of units or the amount you want to withdraw. The remaining units will stay invested and continue to potentially earn returns. However, exit loads may apply in some schemes if redemptions are made before a certain minimum holding period. Also, if you have earned any profits from your investment, you may have to pay capital gains tax, depending upon the scheme type, the capital gains amount and the holding period.

How much time will it take to redeem a mutual fund?

The time taken to receive redemption proceeds depends on the type of mutual fund scheme and may also vary from one AMC to another.

Can I withdraw the full amount from a mutual fund?

Yes, you can withdraw the full amount from most open-ended mutual funds by placing a full redemption request. However, ELSS funds and Solution-Oriented funds come with a lock-in period (three years and five years respectively), during which no redemptions are possible.

How do I avoid paying taxes on mutual funds withdrawal?

Completely avoiding taxes on mutual fund withdrawals may not always be possible. However, you may manage the tax impact by holding investments for the long term (not applicable to debt-oriented funds), spreading withdrawals across financial years, or setting off capital losses, as per prevailing tax laws.