What is the Redemption of Units in a mutual fund?

Redemption is easy to understand. You sell your mutual fund units back to the fund company, called the AMC. The AMC pays you money for your units. The price for that day is called the NAV. The money goes right into your bank account. This is the only way to get cash from your units. You must pay any selling fees and taxes.

Understanding Mutual Fund Unit Redemption

What Does Unit Redemption Mean in Mutual Funds?

A unit redemption means you tell the AMC to sell your units. You must tell them how many units you want to sell. Or you can tell them how much money you want. The AMC cancels your units and puts the money in your bank. They figure out how much to pay you using that day’s NAV. They always take out any fees first.

Why Do Investors Redeem Mutual Fund Units?

There are only a few good reasons to sell your units. You sell when you reach your money goal, like buying a home. You sell when you need cash for an emergency. You also sell to fix your investment plan or move to a better fund. If a fund is doing badly for a long time, you must sell it.

Unit Redemption vs Stock Selling Differences

Selling fund units is not the same as selling stocks. They are very different. Stock prices change all day long. A mutual fund has only one price each day. This price is the NAV. When you sell stocks, you get your money the next day. A unit redemption always takes more time. Also, mutual funds charge an “exit load” fee if you sell too soon. Stocks do not have this fee.

Types of Unit Redemption Methods Available

Unit-Based Redemption Process

How Unit-Based Redemption Works?

You tell the company the exact number of units you want to sell. The company uses that day’s NAV to work out how much they are worth. Then, they send the money to your bank. They always take out an exit load fee if you sell too early. This is a very popular way to redeem.

Calculating Returns from Unit-Based Redemption

The math is easy. Money you get = (Number of units you sold) × (NAV for the day) – (Exit Load fee). Here is an example. The exit load is 1% and the NAV is ₹25. You sell 1,000 units. The total value is ₹25,000. The exit load is ₹250. You will get ₹24,750 in your bank before tax.

Amount-Based Redemption Options

Steps for Amount-Based Unit Redemption

This is the only way to get an exact amount of money. You choose your fund. You choose the “Amount” option. You type in the exact rupees you want. You must check your bank details. Then you submit your request before the cut-off time. This way, you get that day’s NAV. The computer sells the right number of units for you.

NAV Calculation in Amount-Based Redemption

The computer uses a simple formula. Units to be sold = (Money you want) ÷ (NAV for the day). It also takes out the exit load. This makes sure you get the exact cash you asked for. The computer can even sell a small part of one unit to get the amount just right.

Complete Unit Redemption (Redeem All)

When to Choose Complete Unit Redemption?

You must “redeem all” your units in some cases. Do this when you reach a big goal. Do this when you want to get out of a bad fund. Use it to clean up a messy account with too many funds. Do it when you move your money to a new investment or get a new advisor.

Impact of Redeeming All Units at Once

Selling all your units at once is a big deal for your taxes. All your profit for that year will be taxed. This can make you pay a lot more tax. If you sell a large amount, you can also lose some tax benefits. The only smart way to sell a big investment is to sell it in small parts over time. This plan lowers your tax bill. It also gives you money a little at a time.

Step-by-Step Unit Redemption Process Guide

How to Redeem Units Online?

Online Unit Redemption Through AMC Portal

The AMC website is the best and fastest way. Log in with your account info and the OTP code from your phone. Choose the fund you want to sell from. You must pick if you want to sell by units, by amount, or “redeem all.” Check your bank account details. Submit your request before 3:00 PM to get that day’s NAV. You will get a message that it is done.

Mobile App Unit Redemption Steps

Using a mobile app is also very easy. Open the AMC’s app and log in. Go to the “Redeem” part of the app. Type in the amount of money you want or the number of units you want to sell. Check your bank details and submit. You can check on your sale in the “Transaction History” section.

Offline Unit Redemption Methods

Unit Redemption Through Distributor

This is the old way to do it. You must fill out a paper form. You write your account number, the fund’s name, and how much you want to sell. Then you sign it. You may have to give them a cancelled cheque. Give the form to your distributor. They will submit it for you. The NAV price you get depends on when they submit it.

Direct Unit Redemption at AMC Office

You can also go to the AMC office yourself. You must bring your PAN card and another ID. Give them the signed form before the cut-off time. They will give you a paper receipt with a stamp. You must keep this paper to check on your sale.

Required Documents for Unit Redemption

To sell your units, you must have these things. You need your account number, called a folio number. You need your PAN card. Your KYC must be done. You also need your bank account information. Your signature must look the same as the one the company has for you.

Unit Redemption Charges and Settlement

Exit Load on Unit Redemption

How Exit Load is Calculated on Redemption?

An exit load is a fee you pay for selling your units too early. It is like a penalty. The fee is a small part of the money you take out. For example, many funds charge 1% if you sell in less than one year. You must read the main fund document, the SID, to know the exact fee.

Exit Load Waiver Conditions for Unit Redemption

Sometimes, you don’t have to pay the exit load. This happens if the investor dies. Some special plans also do not have this fee. Some funds have a fee that gets smaller over time. You must always check the newest rules for your fund.

NAV Application Rules for Unit Redemption

Same Day NAV for Unit Redemption

The NAV rule is very strict. You must submit your request before 3:00 PM on a work day. If you do, you get that day’s NAV price. If you are late, or if it is a holiday, you get the next work day’s NAV.

Cut-off Timing for Unit Redemption NAV

The final time to submit your request is 3:00 PM for all funds. Some special funds, called liquid funds, have an “instant redemption” option. This gets you your money in minutes. But there is a limit on how much you can take out each day.

Unit Redemption Settlement Timeline

T+1 Settlement for Liquid Fund Units

For Liquid funds, your money will be in your bank the next work day. This is called T+1. The “instant redemption” feature is much faster.

T+3 Settlement for Equity Fund Units

You must know these timelines. Equity funds take 3 work days to pay you. This is called T+3. Debt funds take 2 work days. This is T+2. The counting starts on the day your NAV is set.

Tax Implications of Unit Redemption

Capital Gains Tax on Unit Redemption

You must pay tax when you sell your units and make a profit. This is a capital gains tax. Your profit is the money you made. It is the sale price minus the price you paid. The tax rules are different for every fund. You must know these rules.

Short Term vs Long Term Gains on Redemption

The tax rules are very clear. For equity funds, if you sell in less than 12 months, you pay 20% tax on your profit. If you sell after 12 months, you pay 12.5% tax. For other types of funds, any profit you make is added to your income. You pay tax at your normal rate.

How Unit Redemption Affects Your Tax Liability?

You must be smart about taxes. If you sell a very large amount at one time, your tax bill will be very high. The best plan is to sell your units in small parts over many years. This plan will keep your tax bill low. It also gives you the money you need.

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