How to Withdraw Money From Mutual Fund?

Nitin Agrawal
Nitin Agrawal
mutual fund withdrawal

All You Need to Know About Mutual Fund Withdrawal

A mutual fund is considered one of the best wealth creation and investment vehicle that can be adopted by the predominantly middle-class Indians. It not only provides a way in for us to get involved in stock trading but also alleviates the risk associated with share markets. When we have a dedicated mutual fund manager to identify the best stock to pick based on our respective wealth building objectives, things get a lot simpler.

One of the biggest advantages of a mutual fund is its liquidity. Unlike other forms of investments, mutual funds come in handy in case of urgent emergencies. However, we need to time the mutual fund withdrawal well, so that we are able to extract maximum performance from our investments.

The Basics of Mutual Fund Withdrawal

The Securities and Exchange Board of India (SEBI) regulate mutual funds. Because of this, there are well-established norms about the withdrawal of mutual funds. At a very high level, an investor needs to apply to withdraw certain units from the existing fund (or withdraw the entire amount). In the application, the investor will need to specify a bank account to which it needs to be deposited. Once the processing for redemption is finished, the withdrawal amount specified will be transferred to the investor’s bank account in three working days.

Ways to Withdraw Mutual Funds

a. Offline Mode

1 – Fill in important details like folio number, scheme name, number of units to redeem, and the unit holder’s name in the redemption request form.

2 – Submit the form to the AMC (direct)

3 – You can also submit the redemption request at the offices of a registrar like CAMS or Karvy that handles several mutual fund schemes and its paperwork

b. Online Mode

1 – Log in to the AMC website using your sign-in credentials like Folio number and PAN number

2 – Select the scheme, number of units or the amount to be redeemed

3 – Confirm to begin the online redemption process

4 – You can even visit the websites of registrars like CAMS (if they service your AMC) to carry out the redemption process.

Points to Note before Mutual Fund Withdrawal

1. The Current NAV

It is important to note that the NAV (Net Asset Value) determines the fund value applicable. This is declared every working day once the trading session is over for that day. Therefore, you need to time your redemption request submission so that you can utilize the current day’s NAV (usually up to 3 pm on a trading day) before your mutual fund withdrawal.

2. Processing Time Taken

After the request for mutual fund withdrawal is submitted, the AMC needs time to verify and process the request. This typically takes around 3 working days. The amount will be credited to the unitholder’s bank account in this duration.

3. Examine the Lock-In Period

Lock-in period determines the time bracket after which you can withdraw money from your mutual fund investment. It is important to check the type of scheme you have taken up. Here are details about the lock-in period for major types of mutual funds

1 – Open-ended schemes – these do not come with a lock-in period

2 – Close-ended schemes – these carry a lock-in period of 3 to 5 years. This means that you cannot withdraw money from such schemes before this duration

4. Exit Loads and Applicable Taxes

Your mutual fund withdrawal will have implications in the form of taxes and exit loads. You would need to check on these before you raise the redemption request.

Tax Implications on Mutual Fund Withdrawal

The tax impact for withdrawals will depend on two factors –

1 – The type of mutual fund (i.e. long-term/equity funds and short-term/debt funds)

2 – The duration of the investment

Let’s look at individual situations for the right assessment of tax impact

1 – Equity Funds

The rationale behind opting for equity mutual funds is that you would not need the amount 8-10 years from the start date. There are two scenarios here

a. Withdrawal before 1 year is complete – 15% short-term capital gains tax is applicable on such withdrawals.

b. Withdrawal after 1 year – 10% (if the capital gain in the year is above Rs. 1 lakh)

2 – Debt Funds

The typical investment horizon is 1-4 years for such funds.

a. Withdrawal before 3 years are complete – Profit on the withdrawn amount will be added to your taxable income as per applicable slabs.

b. Withdrawal after 3 years – Tax at 20% of the amount withdrawn after factoring in the indexation

When NOT to Withdraw Mutual Fund?

In case the market is fluctuating wildly then it is a common tendency to get out and sell the mutual funds. However, experts recommend that this is not the best course of action. A mutual fund helps you purchase more units when the market is in a downturn. Even the risk is minimized as market corrections would definitely happen in quick time and reverse the downward trend. In addition, there may be temporary factors like upcoming elections that might affect the movement of mutual fund NAV. However, these are not permanent and hence should not be a reason why you exit a mutual fund.

Nitin Agrawal
Nitin Agrawal

Nitin is the Co-founder and CEO at Orowealth and has worked at Deutsche Bank for 6 years in Equity Structuring across their London and Singapore offices. He is a MBA from IIM Bangalore and has a degree in Electrical Engineering from IIT Bombay.

  • Avatar
    Pratik Shah
    Posted at 06:08h, 09 September Reply

    Hello Nitin,

    This is Pratik Shah here, wanted a clarification on LTCG on mutual funds. As mentioned by you there will be no tax on the investments withdraw post 1 year of investment in mutual funds. But according to the recent modifications in the LTCG tax structure all investments in the equity are taxable at a rate of 10% (Till 1 lakh it is exempt). I might be understanding it wrong. Can you clarify on this


    Pratik Shah

    • Avatar
      Posted at 10:26h, 25 September Reply

      Hi, you are right in the observation. It was a mistake on our end. We have updated the article. Thank you so much for your vigilance! Please keep visiting us and interacting with us!

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