According to the Association of Mutual Funds in India (AMFI), as of Feb 2023, there are 6.28 Cr active mutual fund SIP accounts in the country. While this number is constantly increasing, they are also clear evidence of the massive popularity of this investment tool. But, as an investor, you should also be aware of the equity mutual fund redemption time and other factors that will help you get the best returns on your investment.
Mutual funds are an indirect form of investment. In other words, unlike shares you can directly buy on the stock market, mutual funds invest in securities of various companies and give you units in proportion to the amount invested.
The prevalent Net Asset Value (NAV) of these units (at the time of redemption) determines the final amount you will be entitled to. The calculation formula is:
Since you didn’t buy the mutual funds directly in the open market, you cannot sell them there either. Instead, you need to submit a redemption request form to the Asset Management Company (AMC) or the fund house to redeem the units of the funds that you hold.
The form typically requires you to provide information such as your folio number, the number of units to be redeemed, and bank details wherein the money will be transferred. The due amount is credited to your bank account within a few working days after successfully processing the redemption request. This application can be submitted through both offline and online channels. Check with your fund house for specific details.
If your SIP redemption time has arrived, then apart from knowing the process summarised above, you should also know the important underlying factors that affect the process and the subsequent timeline.
Type of mutual fund – Your mutual fund’s category directly correlates with its redemption time.
The most flexible fund, as it allows you to redeem your units on any business day. They usually do not have a lock-in period, making them more liquid than most other funds. A majority of the equity funds fall under this category, which is why the redemption time for equity mutual funds is shorter, and upon raising the request, you can expect the money in your account in T+3 or T+2 days; where T is the business day on which the redemption request was filed. Having said that, there may be an exit load that may be applicable. It is usually levied when funds are redeemed within 1 year of their date of purchase. Always check the terms of conditions of your mutual fund units to avoid an unpleasant surprise later on.
These have a fixed maturity period and may only allow redemption at specific intervals. Many of the debt funds and tax-saver funds fall under this category. The redemption restriction is often 3 years. Which means you cannot withdraw the money before the completion of the maturity. Some other funds may allow you to redeem, but not without levying some penalty on the overall value of your holdings.
However, it's important to note that there can be exceptions and variations in the redemption time frame. Some mutual funds may offer instant redemption, allowing you to access your funds immediately, while others may have longer processing times. To get precise information about the redemption time for a specific mutual fund, it's advisable to check the fund's offer document or contact the fund house or your financial advisor.
There are vast categories of mutual funds and many individual mutual fund schemes. So, you'll need to be thoroughly informed about your holdings' specific terms and conditions before applying for their redemption. This will help you time your redemption request optimally and reduce the loss in overall value due to exit load, penalties, and/or other fees — such as commissions charged by the mutual fund platform.
Mutual Fund investments on Fi, though, are commission-free. Moreover, you can select from over 900 direct Mutual Funds to invest daily, weekly, or monthly via automatic payments or SIPs — created with one screen tap. Plus, Fi's 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor.
Earlier, only liquid and overnight funds followed the T+2 redemption cycle, in which T stands for the business day the redemption request is raised. However, due to recent changes introduced, almost all funds have followed suit, and you can expect to get your money in 2-3 working days after raising the request.
Open-ended funds (such as liquid and many equity funds) allow you to withdraw anytime. Do note there may be an exit load that may be applicable. This clause is activated if the fund is sold within a year of its purchase and usually hovers around 1-2% of the net value. Close-ended debt funds typically have a 3-year lock-in period and cannot be withdrawn anytime earlier. Some tax-saver funds may even have a 5-yr fixed maturity period.
Just like a SIP allows you to invest steadily with the amount of your choice, an SWP (Systematic Withdrawal Plan) helps you withdraw amounts to cover your monthly expenses. This form of fixed-income strategy can be quite useful for your retirement or in unforeseen times of need.