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Ventura Wealth Clients
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If you are an investor seeking a diversified portfolio that is managed professionally, mutual funds are most likely your preference. However, as with any investment, understanding the exit strategy is crucial. In this comprehensive guide, we delve into the intricacies of mutual fund redemption, providing investors with a clear understanding of the process and its implications.

What is mutual fund redemption?

Mutual fund redemption is the process of selling or liquidating units of a mutual fund scheme. You can choose redemption for various reasons such as capital withdrawal, profit-taking, or rebalancing your investment portfolio. It is essential to grasp the nuances of mutual fund redemption to make informed decisions aligned with your financial goals.

Key components of mutual fund redemption:

1. Redemption Request:

To initiate the redemption process, investors need to submit a redemption request to the Asset Management Company (AMC) managing the mutual fund scheme. This request can be made online or through physical forms available with the fund house. Alternatively, some broking platforms also let you redeem multiple mutual funds through them, thereby saving you the time and effort of going to each AMC’s portal and redeeming your funds individually.

2. NAV Calculation:

The Net Asset Value (NAV) is crucial in determining the redemption proceeds. NAV represents the per-unit market value of the mutual fund scheme. The redemption amount is calculated based on the prevailing NAV at the time of processing the request.

3. Exit Load:

Some mutual funds impose exit loads, a fee charged when investors redeem units before a specified holding period. Understanding the exit load structure is vital, as it directly affects the redemption proceeds.

4. Tax Implications:

Mutual fund redemption may have tax implications, especially concerning capital gains. Short-term capital gains (STCG) and long-term capital gains (LTCG) are taxed differently, and investors must be aware of the tax implications based on their holding period. For resident investors, mutual funds do not deduct taxes. However, for NRIs, the AMCs deduct the applicable tax themselves.

Steps in mutual fund redemption

1. Submit Redemption Request:

Whether through the fund house's online portal or a physical form, investors need to submit a redemption request specifying the number of units or more preferably, the amount of funds they wish to redeem.

2. NAV Calculation:

The mutual fund scheme's NAV is calculated at the end of the trading day. The redemption amount is determined by multiplying the number of units to be redeemed by the NAV.

3. Exit Load Calculation:

If applicable, the exit load is deducted from the redemption amount. Exit loads are designed to discourage short-term trading and protect long-term investors.

4. Tax Deductions:

Capital gains tax is applied based on the holding period and the type of fund. For equity-oriented funds, i.e., mutual funds with over 65% of equity holdings, the short-term capital gain is taxed at 15% while long-term gains over Rs. 1 lakh are taxed at 10%. For non-equity-oriented funds with equity holdings between 35 to 65%, the short-term capital gains are taxed at the investor's applicable slab rate, while long-term capital gains are subjected to 20% taxation with a 20% indexation benefit. For funds with less than 35% of equity holdings, the taxation is as per the applicable tax slab of the individual.

5. Payment Processing:

The redemption proceeds are then processed, and the payment is typically credited to the investor's registered bank account. This may take a few business days, depending on the TAT of different fund categories.


Mutual fund redemption is a vital aspect of the investment journey, offering flexibility and liquidity to investors. By understanding the key components, steps involved, and considerations associated with mutual fund redemption, investors can navigate this process with confidence. Whether for capital requirements, profit realization, or portfolio rebalancing, a well-informed approach to mutual fund redemption contributes to a more robust and goal-oriented investment strategy.

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