Mutual fund redemption is often surrounded by myths that can mislead investors. Let’s debunk some common misconceptions about redeeming mutual fund investments.
10 Redemption Myths About Mutual Funds
Myth 1: Mutual Funds Lock in Your Money Permanently
Fact: Most mutual funds do not have a lock-in period, except for specific types like ELSS, which has a mandatory three-year lock-in.
Example: You can redeem units from an open-ended equity fund anytime without restrictions.
Myth 2: Mutual Fund Redemptions Take Too Long to Process
Fact: Redemption processing time depends on the fund type. Equity fund redemptions typically take 2-3 business days, while liquid funds are processed within one day.
Example: If you redeem liquid fund units before 3 PM, the money is credited the next day.
Myth 3: You Cannot Redeem Mutual Funds Before Five Years
Fact: Most mutual funds do not have a mandatory five-year holding period. Only ELSS funds have a three-year lock-in.
Example: A regular equity or debt fund can be redeemed at any time based on liquidity needs.
Myth 4: Redeeming Mutual Funds During a Downturn Is the Best Strategy
Fact: Selling during a market downturn can lead to losses. Staying invested and following asset allocation strategies can yield better long-term results.
Example: Investors who stayed invested during market corrections in 2008 and 2020 saw substantial recoveries in later years.
Myth 5: Partial Withdrawals Are Not Allowed in Mutual Funds
Fact: Mutual funds allow partial withdrawals. Investors can redeem only the required amount instead of selling all units.
Example: If you need Rs. 50,000, you can redeem only a portion of your holdings instead of the entire investment.
Myth 6: All Mutual Funds Have Exit Loads
Fact: Exit loads vary by fund. Some funds, like liquid funds, do not charge exit loads, while equity funds may have them if redeemed within a specific period.
Example: Many equity funds have a 1% exit load if redeemed within one year, but none after that.
Myth 7: Withdrawing Money from a Mutual Fund Is Complicated
Fact: Redemption is a straightforward online process through the AMC website, mobile apps, or registered mutual fund distributors.
Example: Investors can redeem funds with just a few clicks using digital platforms.
Myth 8: Systematic Withdrawal Plans (SWP) Are Only for Retirees
Fact: SWPs provide a steady income stream and can be used by anyone, not just retirees, for systematic cash flow management.
Example: Investors use SWPs to manage expenses while keeping the bulk of their investments growing.
Myth 9: Reinvesting Mutual Fund Redemptions Avoids Tax Liability
Fact: Regardless of whether you reinvest your gains, when you redeem mutual fund units, you’ll be subject to capital gains tax, determined by the fund type and how long you held them.
Example: Equity fund LTCG over Rs. 1.25 lakh is taxed at 12.5%, even if reinvested immediately.
Myth 10: Switching from One Fund to Another Is Always a Good Idea
Fact: Frequent switching can lead to higher transaction costs and tax liabilities. A well-planned long-term strategy is more effective.
Example: Switching from one equity fund to another within a year attracts a 15% STCG tax, reducing overall returns.
Redeem Smartly with VSJ FinMart
Understanding redemption myths helps you make informed decisions. Need guidance on the right time to redeem your investments? VSJ FinMart is here to assist!
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Final Thoughts
These myths about fund management can lead to poor investment decisions. While fund managers play a critical role, other factors, such as market trends, expense ratios, and investment strategies, influence mutual fund performance. Instead of chasing star ratings or frequently switching funds, focus on long-term consistency and a well-researched investment approach. Stay informed, stay patient, and let your investments grow over time.
Explore our blogs to gain deeper insights into mutual fund investing:
- 10 General Myths About Mutual Funds
- 10 SIP-Related Myths About Mutual Funds
- 10 Performance-Related Myths About Mutual Funds
- 10 Risk-Related Myths About Mutual Funds
- 10 Taxation-Related Myths About Mutual Funds
- 10 Fund Management Myths About Mutual Funds
- 10 Investment Myths About Mutual Funds
Stay informed and invest wisely! 🚀
📢 Disclaimer
Mutual fund investments are subject to market risks, so read all scheme-related documents carefully before investing. Past performance is not indicative of future results. The information provided in this blog is for educational and informational purposes only and should not be considered investment advice. Investors should consult their financial advisors before making any investment decisions. VSJ FinMart is an AMFI-registered mutual fund distributor (MFD) that does not provide portfolio management or stock advisory services.