Mutual Fund Redemption: Steps, Tax Calculation, and Critical Timeline Considerations

Redemption of a mutual fund is an important feature of investment as it helps the investor sell back his mutual fund unit to the fund house. It allows investors to earn back their profits or access the invested amount. Thus, this article depicts some sub-criteria relating to mutual fund redemption, mutual fund redemption time, including its process, mutual fund redemption cut off time, tax considerations, how to calculate tax on mutual fund redemption and basic information that would have aided a prospective investor.

What is Mutual Fund Redemption?

Mutual Fund Redemption refers to redemption offered by the mutual fund. Redemption of a mutual fund means selling back the units to the house from the investor for cash. It can be done at any point in time after investing in the scheme as per the features set by that particular mutual fund. The amount received by the investor on redemption will be the current NAV of units sold minus all the charges that may be applied.

There are various reasons one might redeem mutual funds, but the most common is either because of an immediate need for some cash or to rebalance the portfolio. Knowing the time frame, the tax involved, and what it is will make the process as smooth as possible.

How the Mutual Fund Redemption Process Works?

The mutual fund redemption process is simple and usually done in a few steps:

1. Initiation: This is the redemption request. Redemption requests can be made online, through a broker, or through a form called a mutual fund redemption, which is sent to the fund house.
2. Redemption Form: Traditionalists may fill out the redemption form available for mutual funds. On this redemption form, they are to fill in all the requirements, such as the name of the applicant, folio number, and number of units to be redeemed.
3. Processing the Redemption: The redemption will be processed if the form is submitted or even if there is an online request. How long it takes to process redemption varies with the nature of the fund but will apply in case a request is made before the close of the cut-off time.
4. Redemption of Cash: The amount will get credited to the domiciled bank account at home once the redemption application is submitted. Generic reports suggest that equity funds take about one to three working days, while debt funds take much longer.

Mutual Fund Redemption Time

It is the amount of mutual fund redemption time from when you place your redemption request to the time when your money gets repaid to your account. It is more variable since the time is decided based on what type of mutual fund it is and what time of day you’re submitting your request for redemption.

For example, if you submit your redemption request before the cut-off time of the mutual fund, it will be accepted into the NAV on that day. If it is after the cut-off time, it will be processed on the next business day’s NAV.

The mutual fund redemption time goes like this:

• Equity Mutual Funds: This usually takes between one to three working days.
• Debt Mutual Funds: It takes more time, usually three to five working days.

Mutual Fund Redemption Cut Off Time

It is the cut-off time of the day by which a mutual fund redemption request has to be received for it to be processed on the same day. If the request is given after this time, it will be processed the next working day.

• Equity Funds: Normally, the cut off is 3:00 PM.
• Debt Funds: Usually, the cut-off is 1:00 PM.

Check with the mutual fund house for the exact mutual fund redemption cut off time as this keeps on changing according to the scheme, so it will be a bit different.

How To Calculate Tax On Mutual Fund Redemption?

Knowing the tax involved in the redemption of a mutual fund is pretty important for gathering the maximum possible returns. Tax implications differ depending on the nature of the fund and the holding period of units that are being sold.

1. Equity Mutual Funds

• STCG: Equity funds held for less than a year, funds through redemption produced are short-term and taxed at 15%.
• LTCG: Long-term capital gains are those where equity funds are held for more than a year. LTCG over ₹ 1 lakh is taxable at 10%.

2. Debt Mutual Funds:

• Short-term Capital Gains: If returns from debt funds have been held for less than three years, are added to your income and taxed according to the Income Tax slab.
• LTCG Long-term Capital Gains: It is taxed at a 20 percent rate if the holding period exceeds three years. Since it is an indexed gain, completely tax-free if the holding period is above three years.

The date of purchase and NAV at the date of buying and selling records need to be maintained while knowing how to calculate tax on mutual fund redemption. It will incur capital gains later in the calculation.

Online Mutual Fund Redemption

Online Mutual fund redemptions for most investors today are the order of the day with heightened technology. This will involve allowing investors to redeem the units through the websites of the house or other investment platforms and does not necessarily require a paper form, among other things.

• Redeem Direct from the Fund Houses: The investor logs into the website of the fund house, traces the place from where one can go for redemption requests, fills in a mutual fund redemption form, and submits their request. This platform tends to show how much the current NAV is and how much is to be credited to the investor’s account.
• Third Party Platforms: There is an increased usage of third-party platforms by most investors in managing all their mutual fund investments in one place. Such third-party platforms usually provide the added benefit of tracking the NAVs, viewing the portfolios, and redeeming funds across one or multiple fund houses.

Mutual Fund Redemption Days

Mutual fund redemption days are the number of business days required to complete a redemption and then credit the same into an investor’s account. It depends on the type of fund discussed below:

• Equity Funds: Redemptions normally take one to three business days.
• Debt Funds: Redemption would take three to five working days, mainly where the market conditions or regulation forces a time lag in processing.

Mutual fund redemption requests are not performed on weekends and public holidays; hence, it takes longer to liquify the money.

Conclusion

Part of handling your investments is processing your mutual fund redemption. Right from knowing the cut-off time of mutual fund redemption, to how to calculate tax on mutual fund redemption and knowing the mutual fund redemption cut off time, mutual fund redemption days, everything is important. Whether this is done from the liquidity or rebalancing perspective or for any other reason, it helps you make better decisions.

If you want to explore professional investment advice, SMC Global Securities is ready to serve and assist with complete investment services. Be it the red form to be filed for the redemption of mutual funds or calculating tax, SMC Global Securities shall guide you through an easy and hassle-free process.

FAQs About Mutual Fund Redemption

1. What is the redemption cut-off of a mutual fund and why is it important?

The redemption cut-off time for the particular mutual fund is supposed to be the last time of the day when a redemption request is to be submitted to get same-day processing. Any application submitted after such time shall be processed on the next business day, which is an important factor when deciding which NAV your units are to be redeemed.

2. How long will my redemption proceeds from a mutual fund take to post to my account?

Typically, mutual fund redemption time is between one and three business days, but this will depend on the type of fund redeemed and when the request was submitted by the individual. Redemption from debt funds would take slightly longer, three to five working days, than redemption from equity funds.

3. How is tax calculated for redemption from a mutual fund?

Redemption from any mutual fund attracts tax that depends on the type of the fund, whether equity or debt and the holding period. Thus, short-term gains in an equity fund would attract a 15% tax, and long-term gains of over ₹1 lakh would attract a 10% tax. Any short-term gains in the debt fund will be calculated as part of your income and attract tax as applicable under your income tax slab.

4. How do I redeem my units in a mutual fund?

You can redeem the units of a mutual fund in several ways, including

• Online Mutual Fund Redemption: You can redeem units directly through the website or investment platform of the fund house.
• Mutual Fund Redemption Form: You can submit a physical redemption form to the fund house.
• Through a Broker: Your broker can initiate the redemption process for you.

5. May I only redeem some units in my mutual fund?

Yes, you can redeem some units. You can indicate the number of units or the amount you want to redeem. This flexibility can allow you to facilitate your needs of managing your investment in consideration of your monetary requirements.

Author: All Content is verified by SMC Global Securities.