VR Logo

Best way to redeem and reinvest in MFs

You should also take into account the taxation and exit load before taking a final decision on redeeming the fund

I want to remove money from one of my mutual funds and reinvest in another. Please let me know the best way to do it.
- Pawan Bhatt

You should also take into account the applicable taxes and exit load before taking a final decision on redeeming the fund. For example, if you are selling your debt mutual funds before three years, you will have to pay a short-term capital gains tax at the income tax slab applicable to you. If you are selling your debt investments after three years, you would qualify for a long-term capital gains tax of 20 per cent with indexation benefit. Equity mutual funds have a different taxation. If equity investments are sold before a year, gains are treated as short-term and taxed at 15 per cent. If you sell them after a year, you need not pay any taxes as the gains would be treated as long-term capital gains. Long-term capital gains tax is zero on equity at the moment. Also, some mutual fund schemes charge an exit load on redemption before a certain period. The point is if you can wait a little longer and avoid paying these extra charges, you should aim for it.

We can't offer you a specific answer as you have not provided any details of your investment. So, we are offering you a general advice. To begin with, you should ideally redeem your investments under two circumstances. One, you have achieved the investment goal or target amount. Two, the scheme has been underperforming its benchmark and peers for more than a year. If that is the case, find out the reason behind the insipid performance and if the reason doesn't sound convincing enough, sell your investment and invest the money in a better performing (always focus on long-term performance) scheme in the same category.

Post Your Query