Index Fund Corner
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
But one common question many investors ask is: Can you redeem mutual fund investments anytime?
The simple answer is yes, but there are factors to consider before redeeming your investment.
For example, ELSS comes with a mandatory lock-in period of three years.
This means you cannot redeem your investment in an ELSS fund before the completion of the lock-in period, even during emergencies. Once the lock-in period ends, you can redeem your units like any other mutual fund.
Let’s dive deeper into the details.
Understanding mutual fund redemption
Redemption is the process of selling your mutual fund units back to the fund house for cash.
The value you receive from redemption is based on the current market value, determined by the fund’s net asset value (NAV).
Types of redemption
According to Groww, there are three common types of redemption:
Unit-based redemption: You specify how many units of the mutual fund you wish to redeem. The amount you receive is determined by the number of units and the prevailing NAV of the fund.
Amount-based redemption: In this type, you specify the amount you want to redeem. The number of units redeemed is automatically calculated based on the NAV to match your desired amount.
Redeem all: This option allows you to redeem your entire investment in the mutual fund, liquidating all your units at once.
Exit loads and penalties
Most mutual funds have an exit load, a penalty charged if you redeem your units before a certain period. This is often around 1% of the amount being withdrawn.
Groww points out that equity funds typically have a minimum holding period of one year, but for debt funds, this period can vary.
Short-term debt funds often have a much shorter minimum holding period, allowing for quicker redemptions without penalty.
It’s essential to check the exit load and holding period for the specific mutual fund before deciding to redeem, as these can impact the total amount you receive.
Open-ended vs closed-ended funds
The type of mutual fund determines how and when you can redeem:
Open-Ended Funds: These funds allow you to redeem your investment anytime, as they are open for buying and selling. They are the most common type of mutual fund.
Closed-Ended Funds: Redemption in these funds is only possible after a specific lock-in period. You can also redeem units when the fund reaches maturity, or through exchanges if they are listed.
Methods to exit from mutual funds
Through trading account or demat: If you purchased your mutual fund units through a trading or demat account, you’ll need to place a sell order with the same broker.
The proceeds will be credited to your bank account linked to the demat account.
Directly via AMC or distributors: Many investors buy mutual funds directly from the Asset Management Company (AMC) or through distributors like Groww. These platforms provide an online interface where you can redeem your units with ease.
Through Registrar and Transfer Agents (RTAs): RTAs like CAMS and KFin Technologies manage the transactions and records for mutual fund houses. You can also redeem your units through them.
When should you consider redeeming your mutual fund?
Groww suggests that while it’s possible to redeem your mutual fund units anytime, it’s essential to consider various factors before doing so.
Here are some scenarios where redeeming might make sense:
Below-par performance: If your mutual fund consistently underperforms its benchmark, it may be time to reevaluate your investment.
As Groww explains, consistently negative alpha (the difference between the fund’s returns and the benchmark) is a sign that the fund may not be achieving your financial goals. It’s worth considering a better-performing fund in such cases.
Financial emergency: Sometimes, urgent financial needs like medical emergencies or job loss require quick access to funds. If you’ve invested in liquid funds, Groww notes that they allow instant redemption, providing quick access to your money.
Changes in strategy: If the mutual fund changes its investment strategy or fund manager, it might no longer align with your financial goals.
Though AMCs usually inform investors of any changes, Groww recommends reassessing your investment strategy and considering redemption if the changes no longer match your objectives.
Achieving your financial goals: If your investment has reached your target return and you’ve achieved your financial goal, it might be time to redeem your mutual fund. However, you should be cautious about exiting during a temporary market fluctuation, as the fund manager might rebalance the portfolio to optimise future returns.
