Mutual fund investments enable investors to optimise their returns while trying to mitigate the risks arising out of market volatility. It pools the funds of multiple investors and creates a bigger corpus that gets invested into various asset classes.
Investors can invest in mutual funds through lumpsum or a systematic investment plan (SIP). Lumpsum investment enables investors to make a one-time investment of a substantial quantum.
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What is SIP?
A systematic investment plan provides an avenue for individuals to invest a pre-determined amount of money over a pre-determined period of time at fixed intervals. It uses the concepts of compounding and rupee cost averaging to ensure returns to the investors.
Rupee cost averaging refers to the principle that states when an investor invests a fixed amount regularly, say monthly, they can combat market volatility and optimise return. SIPs promote a disciplined approach to investing.
However, sometimes investors find it difficult to keep paying SIP instalments due to unforeseen circumstances. Moreover, situations might lead to an immediate need for money. In such scenarios, investors might wish to use the funds invested in mutual funds.
SIP withdrawal vs. SIP redemption
SIP redemption forms a subset of the SIP withdrawal process. SIP redemption refers to the specific process of selling or redeeming units of a mutual fund purchased through a systematic investment plan by an unitholder of a mutual fund.
Withdrawal of funds through redemption is one of the ways in which a unitholder can make withdrawals. Other avenues like a systematic withdrawal plan also serve as an option. SWP refers to an investment mechanism wherein a corpus is invested in a mutual fund and withdrawals can be made at specific intervals.
Withdrawal through redemption is commonly used to meet unforeseen needs of funds. Whereas, avenues like SWP can serve best for planned withdrawals which serve as a regular flow of income.
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How to withdraw SIP?
Investing regularly in a mutual fund through a SIP may assist investors in building their wealth in the long term. However, owing to unexpected situations, investors may decide to redeem their mutual fund investments. Listed below are the different methods by which an investor can redeem their funds.
Intermediaries
To withdraw their mutual fund investments made through a regular plan, investors can contact the broker through whom they invested. The withdrawal process might somewhat vary based on the agent.
Once the investor provides the form to the intermediary, it will be verified and forwarded to the Asset Management Company (AMC). The money will be transferred to the investor’s bank account once the AMC approves the application.
Demat account
If the investor purchased units of a mutual fund through a demat or trading account with a broker, they must place a request through that particular broker. Once submitted, the request will be delivered to the AMC to undergo additional inspection and execution. The equivalent sum is transferred to the bank account associated with the demat account.
Registrar and Transfer Agent
Mutual fund companies, particularly those with substantial Assets Under Management (AUM) and many funds, frequently hire a specialised corporate body known as the Registrar and Transfer Agent. An investor can withdraw from a mutual fund via SIP by informing the RTA. Some RTAs have specialised digital platforms where investors may submit redemption requests virtually.
AMC
Investors can also redeem the SIP by placing withdrawal requests directly with the Asset Management Company (AMC), which manages their mutual fund. Some AMCs have specialised digital sites where investors may register and submit redemption requests.
Types of SIP redemption in the SIP withdrawal process
There are not only various methods by which investors can redeem their mutual fund investments but also various types of redemption.
Unit
Unit-based redemption allows investors to choose the number of mutual fund units they want to redeem. The amount they get will be decided by the number of units that they intend to redeem and the current net asset value (NAV) of the mutual fund units.
Amount
Amount-based redemption indicates the amount that investors would like to redeem. As a result, the desired number of units is immediately deducted depending on the NAV.
Redeem all
This sort of redemption allows investors to redeem their whole mutual fund investment.
Conclusion
Redemption of mutual fund investments is necessary to meet unforeseen circumstances. However, there are various factors which should be considered while ensuring avoidance of unnecessary redemption.
A mutual fund’s returns are determined by the performance of its stocks. Market volatility causes some stocks to increase while others to decrease. Redeeming the investments just because of a momentary market fluctuation is not prudent. This holds greater significance for long-term investors. Inconsistent market fluctuation often stabilises with time.
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FAQs
- Can I withdraw SIP at any time?
Investments in mutual funds through systematic investment plans often allow withdrawal facilities through the redemption of units. SIP redemption refers to the specific process of selling or redeeming units of a mutual fund purchased through a systematic investment plan by an unitholder of a mutual fund.
- What are the charges for SIP withdrawal?
There are no uniform withdrawal charges. Investors should refer to the terms and conditions of the mutual fund in question to know about any applicable charges. However, there are some considerations to consider while avoiding needless redemption. It is not smart to redeem assets just because of a brief market volatility.
- Can I lose my money in SIP?
Investors should remember that systematic investment plans are methods of investment in mutual funds. Mutual funds invest their corpus in various asset classes that also include stocks. Therefore, mutual fund investments are susceptible to market volatility. Investors should take into account mutual fund-specific metrics like expense ratio.
- What is the time limit for SIP withdrawal?
There is no uniform time limit for mutual fund redemptions. Various mutual fund houses often have lock-in periods that elongate the possible withdrawal period. The lock-in period refers to a time limit within which an investor cannot make any withdrawals. Moreover, once a withdrawal request is made, the time required depends on the mutual fund house and method of redemption.
- What happens if I stop paying SIP?
If an investor ceases making SIP payments, no additional mutual fund units are assigned to the investor in issue. However, the current mutual fund units continue to be invested and perform following the behaviour of the securities included in the asset portfolio in the market.
