How Do You Withdraw Money From Mutual Funds?

When it comes to managing your investments, mutual funds are a popular choice for those looking to expand their portfolio and earn steady returns. However, there may come a time when you need to withdraw money from your mutual funds, whether it is a partial or complete withdrawal. Navigating the world of investments can sometimes feel like a complex maze, especially when it is time to enjoy the fruits of your financial planning. Mutual funds, a key component of many investment portfolios, offer the advantages of diversification and professional management. However, withdrawing money from these funds can be intimidating for new and seasoned investors.

Depending on the type of mutual fund you choose, you can easily access your funds when needed. Therefore, in case of an emergency, you always have the option to sell your mutual fund assets and convert them into cash.

This blog will cover the steps involved in mutual fund withdrawal and the necessary process of redeeming units from Mutual Funds during unexpected situations.

Various Methods to Withdraw Money from Mutual Funds

Various methods exist for withdrawing money from mutual funds, each with its own procedures and factors to consider. The process of mutual fund withdrawal is straightforward and offers multiple methods to access your cash. You can redeem your mutual fund through an Asset Management Company (AMC), an agent, or your personal demat account. Now, let us delve into these methods and explore them further.

Redemption via Asset Management Company (AMC)

You have the option to redeem your Mutual Fund plan directly through the AMC. You can either visit an AMC branch office or request a withdrawal online. AMC’s official website and mobile app also provide a convenient way to initiate the redemption. Most AMCs offer a dedicated portal, mobile app, and relationship manager for customer convenience. If you bought your mutual fund units through an AMC, you can easily sell them by logging into the portal. You can choose to redeem some or all of your units, depending on your preference. Certain AMCs also offer mobile applications that facilitate this process.

Redemption via DEMAT Accounts

The procedure is simple if you have bought mutual fund units using your personal demat account. You can redeem money from your DEMAT and trading accounts if you have used them to invest in Mutual Fund schemes. First, you need to access your account, select the desired withdrawal amount, and submit a request to confirm your Mutual Fund investment. Within a few days of applying, your payment will be processed using your preferred payment method. The withdrawn amount is then transferred to the bank account linked to the demat account.

Redemption via an Agent

If you have invested in a Mutual Fund plan through a broker or agent, there are various ways to withdraw your money. You can contact your agent directly and request your mutual fund withdrawal. To withdraw offline, you must complete and submit a withdrawal request form. Your agent will forward this form to the Asset Management Company (AMC). Alternatively, you can redeem your funds online if your agent offers online services through a website or mobile app. You can easily request a withdrawal by logging into your Mutual Fund account. Select the withdrawal option and enter the amount you wish to redeem. Once the form is submitted, your request will be processed instantly.

Online Withdrawal from Mutual Funds

Withdrawing money from a mutual fund online is a straightforward process that can be completed in a few steps. Here are steps on how to withdraw mutual funds online:

• To sell or redeem your mutual fund units, log in to your company’s online portal using your username and password. Look for the option to sell or redeem under sections like ‘Transactions’, ‘Manage Investments’, or ‘Redeem’.
• Choose the mutual fund or specific fund units from which you wish to withdraw money. You may be able to redeem a specific number of units or a specific monetary amount. Ensure you are aware of the minimum redemption requirements, if any.
• Before submitting a redemption request, check for any exit fees or penalties. This information is typically provided during the redemption process. After reviewing the charges, submit the request and confirm bank account details for the deposit of funds.
• After submitting your request, you will receive a confirmation via email or SMS. The mutual fund company will then process your redemption request, which may take a few days, depending on the fund’s terms and settlement period.
• Redeemed money will be credited to your linked bank account within 3 to 7 business days.

Why People Withdraw Money from Mutual Funds

People withdraw from mutual funds for various reasons, reflecting their financial situations, market conditions, or investment strategies. Some common reasons include:

Financial Requirements: The simplest explanation is that funds must be available to address different costs, unforeseen circumstances, huge purchases, or significant milestones such as marriage, education, or property ownership.=

Investment Strategy Modifications: Investors might shift their strategies due to changes in risk tolerance, financial goals, or a re-evaluation of their investment portfolio. This could lead to reallocating funds to different types of investments.

Market Conditions: In response to market volatility or anticipated downturns, investors might cash out to avoid potential losses or lock in gains from their investments.

Tax Planning: Some investors withdraw funds for tax-related reasons, such as harvesting tax losses to offset gains or managing their taxable income more efficiently.

Retirement Withdrawals: Retirees often withdraw from their investments to fund their retirement, using systematic withdrawal plans to create a steady income stream.

Key Considerations When Withdrawing from Mutual Funds

Several important financial factors must be considered when making a mutual fund withdrawal request.

Type of Fund

The timing of when you can retrieve your money largely depends on the type of fund you put it into. For example, you can only redeem certain products like ELSS or fixed-maturity funds after their lock-in period is over.

Day and Time of Redemption

The settlement cycle for mutual funds varies and can take between T+1 and T+7 days, not including weekends. Investors need to be aware of the settlement cycle before requesting redemption. Mutual funds are settled based on their net asset value (NAV), with a cut-off time of 3 p.m. Applications submitted before 3 p.m. are redeemed at the current day’s NAV, while those processed after 3 p.m. are redeemed at the next day’s NAV. This difference can impact final earnings if there is a noticeable disparity between the two NAVs.

Lock-in Period

Different types of Mutual Funds have specific lock-in periods. For instance, ELSS funds have a 3-year lock-in period. Similarly, solution-oriented programs have a lock-in term of 5 years or until the participant reaches retirement age or the age of majority. During the lock-in period, investors are unable to sell their investments. Therefore, investors must consider the end of the lock-in period before mutual fund withdrawal.

Exit Load

Cashing out mutual funds before they reach maturity results in exit loads, which vary depending on the type of mutual fund investment. These fees typically range from 1% to 2% of the total investment amount. The Ministry of Finance also imposes Securities Transaction Tax (STT) at 0.001% for specific funds. This tax is applied when investors choose to purchase or sell units of equity or equity-oriented funds but do not apply to debt funds. Combined with the above taxes, these fees could diminish the overall return.

Final Thoughts

As mentioned throughout the blog, the decision to redeem a mutual fund is a personal call, influenced by individual goals, other investment options, financial responsibilities, or emergencies. Typically, investors invest in a mutual fund based on its past performance, management team, and overall principles and conditions. Any changes in these factors may prompt investors to explore alternative investment opportunities. Before redeeming mutual fund units, investors should carefully evaluate all options, including exit load, taxes, financial obligations, and goals. Mutual fund investments offer flexibility when it comes to withdrawals.

We trust that you have gained an understanding of how to withdraw money from a mutual fund and whether it is best done in person or online.