Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Calculators/  Costs involved in withdrawing units from a mutual fund scheme
BackBack

Costs involved in withdrawing units from a mutual fund scheme

Many MFs have an exit load to deter early withdrawals

iStockPhotoPremium
iStockPhoto

It is natural to redeem your mutual fund (MF) units once you’ve realized your financial goals. But there are many other reasons behind why investors redeem money from MF schemes. Here are a few things that you should consider before you, too, do so.

ARE YOU PANICKING?

This is one of the biggest reasons why many investors withdraw their money. Knee-jerk reactions usually come under undue circumstances like when equity markets fall the way they did on 24 August, or, for instance, when two debt MF schemes of JP Morgan Asset Management (India) Co. Ltd sank sharply on 27 August on account of a credit rating downgrade. The said schemes warrant an exit but several MF distributors have told us that some investors have started to make panic calls about their investments in other MF schemes as well.

As per a Mint story, patience pays (Read here: https://mintne.ws/1KhtK3D) . Be it the declines in April 1992, May 2004, October 1990 or January 2008, markets have recovered eventually. Investing for the short run and frequently churning your portfolio will not help you in the long run.

EXIT LOAD IMPACT

Many MFs have an exit load to deter early withdrawals. Fund houses also impose exit loads because it enables them to pay slightly higher commissions to distributors. Since exit loads prevent early withdrawals, more investors are prone to stay invested and the fund house gets to earn fund management fees. Hence, they dip into their own pockets to pay commission in advance and then later recover it from investor’s investments. Of course, upfront fees are now capped.

You should check your applicable exit load before you withdraw. Unless you desperately need the money, it might make sense to wait for a few days if the exit load period is ending soon.

Also, remember that the exit load that was there at the time of your investment, will be applicable to you when you withdraw. So, even if the fund house changes the exit load after you invested—or removes it altogether—the old exit load is what remains applicable to you.

TAXATION IMPACT

Check whether you will pay a short- or long-term capital gains tax. If you withdraw from a debt fund before three years, then your gains will be taxed at income tax rates, depending on the tax bracket you fall in.

Long-term capital gains tax rate for debt funds (for withdrawals made after three years; earlier it was one year) is 20.60% with indexation benefits. Gains made from equity funds are taxed at 15.45% as short-term capital tax if withdrawn before a year. And if you withdraw from your equity funds after a year, the gains are exempt from capital gains tax.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 03 Sep 2015, 06:36 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App