How to sell a mutual fund (2024)

FAQs

How to sell a mutual fund? ›

Selling mutual fund shares

What is mutual fund withdrawal process? The mutual fund withdrawal process involves submitting a redemption request through the fund house's online portal or physical form, specifying the number of units or amount to be redeemed, followed by the crediting of funds to the investor's registered bank account.

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.

When an investor sells mutual fund shares, the redemption process is straightforward, but there might be unexpected charges or fees. Class A shares usually have front-end sales loads, which are fees charged when the investment is made, but Class B shares may impose a charge when shares are sold.

Orders can be placed to either buy or sell and can be made through a brokerage, advisor, or directly through the mutual fund. The shares of mutual funds are very liquid, easily traded, and can be bought or sold on any day the market is open.

You must complete and submit a withdrawal request form if you want to withdraw offline. The state would be given to the Asset Management Company by the broker. On the other hand, you may also redeem online if the broker provides a service online through a site or mobile app.

If you receive a distribution from a fund that results from the sale of a security the fund held for only six months, that distribution is taxed at your ordinary-income tax rate. If the fund held the security for several years, however, then those funds are subject to the capital gains tax instead.

Cashing out mutual funds from an IRA or other tax-advantaged retirement account could trigger income taxes and penalties, depending on whether it's a traditional or Roth account. Withdrawing money from investments to pay off debt also means missing out on future growth in those accounts.

The funds report distributions to shareholders on IRS Form 1099-DIV after the end of each calendar year. For any time during the year you bought or sold shares in a mutual fund, you must report the transaction on your tax return and pay tax on any gains and dividends.

If you enter a trade to buy or sell shares of a mutual fund, your trade will be executed at the next available net asset value, which is calculated after the market closes and typically posted by 6 p.m. ET. This price may be higher or lower than the previous day's closing NAV.

How do I sell out of a mutual fund? ›

Market Volatility and Risk Management

Assess how the fund fares compared to its category peers and relevant benchmark indices to determine if it consistently lags. If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment.

Times to Sell

While they are good investment options for several investors, you may think of redeeming the shares in your mutual fund in the following circ*mstances: If the fund manager has changed. If the investment plan and strategy of the fund has been altered. If the fund has been consistently underperforming.

Most AMCs have a dedicated web portal, mobile application, and relationship manager for their investors. If you have purchased your mutual fund units through an AMC, you can simply log in to the portal/app and select the mutual fund and the units you want to redeem. You can choose to sell some units or all.

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.

Although you can buy and sell mutual fund units throughout the day during office hours, there is a cutoff time during the day that determines which day's net asset value (NAV) your transaction would take. This is usually 3 pm for all schemes, except liquid and overnight schemes.

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.

Some equity and bond funds settle on the next business day, while other funds may take up to 3 business days to settle.

Distribution Options: Cash or Reinvest

Earned income or realized capital gains may trigger a fund to pay a distribution. When your fund pays a distribution, you can choose to receive it two ways – in cash or as reinvested units.

The redemption of mutual funds can be done via online or offline methods. In order to redeem funds through offline mode, investors needs to submit a duly signed redemption request form to the AMC's or the Registrar's designated office.