How To Withdraw Money from Mutual Funds?

Is it time to fulfil one of your goals, or are you facing an urgent financial need? Either way, if you wish to withdraw your money from mutual funds, you are in the right place. Mutual fund withdrawals are usually a straightforward process, but understanding the steps involved can make it even smoother. This article will discuss everything you need to know about withdrawing your mutual fund investments.

How do you withdraw money from mutual fund schemes?

There are four primary ways to redeem mutual funds online:

• Through the Asset Management Company (AMC): If you have invested directly with the AMC via a Systematic Investment Plan (SIP) or in a lump sum, you can redeem your mutual funds through their portal. You can simply log in with the credentials provided at the time of allotment and select the fund you wish to redeem. Choose either partial or complete redemption, based on your needs, and fill out a redemption form. The funds will be credited to your bank account within a few business days.
• Through a broker or online portal: If you invested through a broker or an online platform, you can redeem your funds by logging in on the third party’s app or website. Select the fund to redeem and initiate the request for mutual fund withdrawal online. The platform will forward your request to the AMC, and your money will be transferred to your bank account.
• Through Registrar and Transfer Agents (RTAs): You can download the mutual fund withdrawal form from the website of an RTA or walk into their nearest office. Fill out the form and submit it at their office or online. The redemption process will be completed within a few business days, and the money will be deposited into your bank account.
• Through a Demat or trading account: Mutual funds can be redeemed via a Demat or trading account if you have invested through this route. You can log into your account and request a withdrawal for the concerned mutual fund scheme. Once the request is processed, the funds will be credited to your bank account.

Things to consider before withdrawing mutual funds

Here are some things you must know before you decide to withdraw your funds:

• Lock-in period: The mutual fund withdrawal can be impacted by the lock-in period. Equity Linked Savings Scheme (ELSS), a tax-saving equity fund, restricts redemptions for a minimum of three years. In the case of such funds, you have to wait for at least three years from the investment to withdraw your money. In the case of SIPs, the three-year lock-in period applies to each SIP.
• Capital gains tax: Mutual fund withdrawals can lead to capital gains tax if your investments have earned a profit. The amount of tax you pay depends on the type of mutual fund and how long you have held the investment. It is important to understand the tax rules that apply to your specific situation before making a withdrawal, as this will help you plan and avoid any surprises when it comes to taxes.
• Mutual fund withdrawal time: The time it takes for your redemption proceeds to reach your bank depends on the type of fund and when you place the request. For liquid funds and debt funds, your money is typically credited within T+1 business day after redemption. Equity funds take a bit longer, usually T+2 business days for funds to reach your account. International and gold funds have the longest processing time, typically T+5 business days.
• Exit load: Some fund houses charge investors a fee if they redeem or sell their units before a specified period. This fee, known as the exit load, is calculated as a percentage of the redemption value. Naturally, an exit load reduces your take-home returns. Thus, it is important to understand the details of the applicable exit load before withdrawing your investment.

When should you withdraw from mutual funds?

There may not always be a right and wrong time to withdraw from your mutual funds. However, here are some general scenarios to consider:

• Completion of goals: If you have reached your financial goal, such as saving for a down payment on a house, it might be the right time to withdraw. For example, if your investment goal was to accumulate Rs 50 lakh for a home purchase and your investments have reached that value, withdrawing your funds for the purchase would be a logical step.
• Rebalancing your portfolio: Over time, certain investments may grow more than others, which can create an imbalance in your portfolio. In this case, you might sell some mutual fund units and redistribute those funds into other assets. For instance, if your equity allocation has grown too large while your debt investments are low, withdrawing some equity units to rebalance can help maintain a more stable portfolio.
• Underperformance: If certain mutual funds are consistently underperforming compared to their peers, you can consider selling those funds and reinvesting elsewhere. This can help you avoid losses and chase more promising opportunities.
• Financial emergencies: Sometimes, unexpected events such as a health crisis or urgent repairs may require immediate funds. In such cases, withdrawing from your mutual funds can help you manage the emergency.

Alternatives to mutual fund withdrawal - What else can you do?

A withdrawal from mutual funds is not always the best option. It is important to evaluate your entire portfolio and consider other alternatives. For instance, sometimes taking a loan could be a viable alternative if you need immediate funds. If you have other fixed-income investments, withdrawing from them might be a better option. If you own other assets, such as real estate or stocks, selling them could be another way to generate the funds.

When making your decision, it is important to consider factors like taxes, transaction costs, and the potential for future growth.

Conclusion

Mutual fund withdrawal rules are straightforward, and the processing time is relatively quick, which makes it a suitable option when you need access to cash. However, it is important to carefully analyse your overall financial needs before making a decision to ensure that the withdrawal aligns with your long-term goals.

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