Ways to buy mutual funds in India. Mutual Funds: How to Buy and Sell – Redemption of Mutual Funds. Mutual funds have been around in India for nearly three decades now, but the number of people who actively buy and sell mutual funds in the country remains terribly low as a percentage of the population. read more on mutual funds from below…
The fundamental reason for poor participation in the mutual fund market is the lack of awareness; not just about the benefits of mutual funds, but also the knowledge of how to buy and sell them. now check more details for Mutual Funds: How to Buy and Sell – Redemption of Mutual Funds
The following is the process of buying and selling mutual funds:-
Mutual funds are useful instruments that can be bought and sold in a variety of ways. Once all your paperwork is in order, here are some of the various ways one can acquire mutual funds in India:
Once one has decided which way to go and which mutual fund scheme(s) to invest in, he will have to place the order. Here’s the step-by-step procedure of buying a mutual fund:
- Get a demat account
- Go to the Mutual Funds section. Login and then click on ‘Place order’ or, you can call your broker.
- Select the name of the mutual fund or the AMC’s name that you wish to invest in.
- Then select the correct scheme as many fund houses offer multiple schemes.
- Specify the amount you wish to invest in the scheme.
- In case of a dividend scheme, select one of the two dividend options – payout or reinvestment. If he select the payout option, the mutual fund’s dividends will be credited to his bank account. The reinvestment option allows the amount to be used to buy additional units of the scheme. He thus won’t get the dividends credited to his bank account. Select the former if one want a secondary source of income. The reinvestment option, however, helps increase the size of holdings and increase returns.
There are two ways to sell your mutual funds –
- sell to another investor or
- back to the mutual fund.
The latter i.e., back to mutual fund is called redemption of mutual fund. Mutual funds are best redeemed the same route through which they are purchased. This means could choose to redeem them online or offline, through an agent or broker or directly by himself.
A redemption is the return of an investor’s principal in a fixed-income security, such as a preferred stock or bond, or the sale of units in a mutual fund. Redemption involves careful research about the performance of the fund and clarity about the reasons for redemption.
Some of instances for when mutual funds have to be redeemed:
- Most people sell their mutual funds to finance some immediate or upcoming financial requirement, like buying a house or car, paying for children’s education, a health crisis or even an upcoming foreign holiday.
- Another good time to sell off your mutual funds is when your investment requirements undergo a change – this could be due to inherent growth or changes in your existing portfolio or due to a life event that reorganizes your priorities.
- If the performance of a mutual fund dips consistently below expectations and other comparable funds for a sustained period of time. Here, ‘sustained’ refers to a time period of 1 to 5 years at least.
- Changes on the part of the mutual fund – a reset of its investment objectives or strategy, a rejig of its favoured stock picks or sectors in which it invests or even the departure of a trusted fund manager often leads to the sale of such mutual funds by investors.
Mutual funds are managed by professional fund managers who take proactive decisions and try to factor-in the perceived market movements. However, if a mutual fund scheme is consistently underperforming for a very long period (vis-a-vis its benchmark) one may choose exit.
Once the reason for redemption is clear, here are a few points to make the process straight forward.
1. Redemption if Purchased through the AMC or Distributors
The most common route for investing in mutual funds is through the AMC (direct) or through a distributor. In order to redeem funds through offline modes, one need to send a duly signed redemption request to the AMC’s or the distributor’s office. A standard redemption form asks for details like your name, folio number, plan and scheme details, and number of units one wish to redeem. In addition, all the holders have to sign the slip. The proceeds from the redemption will be credited to the registered bank account.
Mutual funds can also be purchased online. Such units can be redeemed online through a trading account or the AMCs website. One simply has to log in, select the fund and the number of units one wish to redeem and confirm your order. In addition, Central Service Providers like CAMS (Computer Age Management Services Pvt. Ltd.), Karvy, etc. offer the option of redeeming mutual fund bought from several AMCs. One can download the form online or visit the nearest office.
Points to be Remember:
- Applicable Net Asset Value (NAV)
- Turnaround Time i.e., Once the redemption request is successfully received and verified, it takes up to 3 working days for the proceeds to be credited to the registered bank account.
- Funds with Lock-In Period i.e., unlike the units of a close-ended scheme, open-ended schemes can be redeemed anytime. Schemes like the Equity Linked Savings Scheme (ELSS) cannot be redeemed up to 3 years from the date of investment.
- Exit Loads and Applicable Taxes i.e., Based on the duration after which one is redeeming the funds, transaction might attract certain amount of taxes and exit loads. Like every investment decision, it is advisable to consult financial advisor beforehand. Remember, redeeming from one scheme and investing into another scheme of the similar kind is called ‘churning’ and is not advisable unless backed by sound logic.
Every mutual fund investor enjoys certain rights, guaranteed by market regulator SEBI and other legal provisions. The following are the rights of Mutual fund investors:-
- The documents, called Scheme Information Document (SID) and Statement of Additional Information (SAI), and Key Information Document (KIM), which gives some important information about the scheme and the fund house. If there is any change in these documents, the fund house have to inform the investor about those changes.
- Annual Reports, Statements of accounts, Periodic updates etc., through newspapers advertisements, shall be inform to the investor.
- Right of investor to receive redemption proceeds within 10 working days. In case a fund house sends the proceeds after 10 days, the investor has the right to receive interest at the rate of 15% per annum for the period of delay after the expiry of the 10th day.
- In case the fund house in which one has invested makes any fundamental change to a scheme, the investors in that scheme can exit his investments without paying any exit load.
- Every investor has the right to know the amount of money, or the commission, that his mutual fund distributor gets by selling the scheme. The distributor should also tell the investor the commissions or remunerations that he gets by selling other competing schemes.
- Every fund house has an appointed officer to attend the investor grievances. In case an investor has any complaints against the fund house, scheme or anything, he can approach the designated officer at the fund house. If the complaint grievance is not resolved by the fund house as to the investor’s satisfaction, he can escalate this to the compliance officer of the fund house. If the same is not resolved by these officers too, the investor can move AMFI, the fund industry trade body or even SEBI, the industry regulator.
Mutual funds are funds that pool the money of several investors to invest in equity or debt markets. The main disadvantages of Mutual Funds is it gives fluctuating returns, very costly due to professional management fees and misleading advertisements of different funds which can guide investors in wrong path. Even though the disadvantages, the mutual fund industry in India has prospered due to transparency and disclosures. Most fund houses come out with a fund fact sheet for each scheme every month. They provide information about the investment particulars of the corpus (company and sector-wise), credit ratings, market value of investments, NAVs, returns, repurchase and sale price of the schemes.