While we hear about investing everywhere, redemption is a lesser talked about. But it doesn’t change the fact that exiting is just as important as entering. If you want to liquidate your funds because it’s not performing well, then I’d suggest that you stick around for longer and see if the market corrects itself. But if it’s for any other reason, then here are possibly 6 things you should keep in mind.
The situation of the market
Value of your units changes every day and you should not panic because you see a dip in the market. If anything, this is the time you should buy more units. But if you have decided that you want to liquidate your funds, then you should at least wait for the market to stabilise because the very first mantra of any financial investment is to buy low and sell high.
Cut-off timings for NAV applicability
It might come as a surprise, but mutual funds have a cut-off timing for investing and redemption. It doesn’t restrict you from either, but it decides which day’s (Net Asset Value) NAV for your units you’ll get for investing or redeeming your units. Liquid, debt and equity funds, all have different timings. So, you must know the cut off timing for liquid or other funds before placing a redemption request.
While an open-ended scheme can be redeemed anytime, a close-ended scheme such as ELSS has a lock-in period before which you can’t redeem it. So, make sure you know your scheme. You may consult your financial investor before investing and read the scheme documents to know in detail about the scheme.
Number of units to sell
Some mutual funds allow you to liquidatesome units in case you need urgent cash. This process may attract some charges, but it is better as your main investment will remain intact. When you decide to liquidate your mutual funds, you can calculate and decide how many units you want to sell.
The potential returns that you earn from mutual funds are taxable. The amount of tax depends on the funds you have invested in. Make sure to properly understand and calculate the capital gain tax if any to save yourself from a rude shock.
In some cases, the mutual fund houses charge exit load when you want to redeem your units. It depends on your mutual fund scheme whether exit load is applicable so you should consider these charges while investing and liquidating.
It is advisable to consult your financial advisor before investing and, also read the Scheme Information Documents to know in detail about the products. It’s suggested that you should always invest in mutual fund with a goal in mind and stick to it. But it’s also important to know what you should do in order to redeem your units.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.