Mutual fund guide: Can I withdraw funds anytime? Here are important factors to consider (2024)

FAQs

Mutual fund guide: Can I withdraw funds anytime? Here are important factors to consider? ›

Considerations for Mutual Fund Withdrawal

You generally can withdraw money from a mutual fund at any time without penalty. 7 However, if the mutual fund is held in a tax-advantaged account like an IRA, you may face early withdrawal penalties, depending on the type of account and your age at the time.

Mutual fund products essentially come with two exit options – voluntary exit at any time during the term of the fund or redemption upon maturity or after lock in. A voluntary exit (before or after lock in) may or may not have an exit load attached.

Below-par Performance By The Mutual Fund

Redeeming your funds just because of temporary market flux is uncalled. This is especially true if you are a long-term investor since the markets eventually stabilize. However, you might consider redeeming your funds if your fund underperforms consistently.

This is known as the right of rescission. If you exercise this right, you will receive the full purchase price you paid for the shares or units or their net asset value at the time of your rescission, whichever is lower. Sales charges and fees will also be returned to you.

You can enter an order to buy or sell mutual fund shares at any time, but your trade won't be executed until the closing of the current trading session or the next trading session if you place your order after hours.

An investment in an open end scheme can be redeemed at any time. Unless it is an investment in an Equity Linked Savings Scheme (ELSS), wherein there is a lock-in of 3 years from date of investment, there are no restrictions on investment redemption.

However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.

You're allowed to sell your mutual fund holdings at any time after buying shares. But there may be consequences based on the type of mutual fund you own. For instance, some fund companies charge an early redemption fee if you sell your shares before a prescribed period of time.

The rule of thumb is five years. If it's a riskier type of fund, such as a small-cap one, then I would say, seven years. But a better approach would be to link your equity fund to a long-term goal, such as your retirement and children's higher education.

What is the best way to withdraw money from mutual funds? ›

How to withdraw money from mutual fund. To withdraw money from mutual funds, you can either complete and submit a withdrawal request form for offline processing, which your broker will forward to the Asset Management Company (AMC), or you can redeem your funds online.

Most open-ended mutual fund schemes offer liquidity – no restriction on time or amount of redemption. However, a few schemes may impose an exit load on early redemptions. Exit loads are charges levied by mutual fund companies to discourage investors from redeeming their investments prematurely.

If you take a distribution from your traditional IRA before you turn 59½, the taxable portion of the distribution may be subject to a 10% early distribution penalty unless one of the exceptions noted in the chart below applies.

While investors can trade individual securities throughout the day, mutual funds are typically priced and traded only once daily, at the end of the day. Even if you enter a trade early in the day, the price you ultimately receive may be higher or lower depending upon the NAV at the time of actual execution.

Mutual fund shares are “redeemable,” meaning investors can sell the shares back to the fund at any time. The fund usually must send you the payment within seven days. Before buying shares in a mutual fund, read the prospectus carefully.

Up to Rs. 1.25 lakh of LTCG earned from equity-oriented mutual funds (including ELSS) is exempt from tax under Section 80C of the Income Tax Act.