There can be multiple reasons for you to sell or redeem your SIP investment. A few common reasons are:
- Profit booking as market is touching all time high
- Switching from a non-performing scheme to a performing one
- You need the capital to be employed else where
Usually, it is best to redeem your SIPs the same way you opened it, that is, either via agents, trading or demat account or via online portals.
Via online portals: Use the username password provided by the site to you and log in to redeem your units. Within a few clicks, you will be asked to confirm your redemption. Up on confirmation, the request is processed accordingly, and the money will be directly transferred to your linked bank account.
Via your trading or demat account: If you have bought your mutual funds through your demat or trading account than you will have to redeem it in the similar way it was bought. As the entire trading process is completed online, an e-payout is made against the redemption request into the same bank account that is registered with your demat account.
CAMS: The mutual fund transfer agency- Computer Age Management Services- or CAMS gives you to the option to redeem mutual funds of several AMCs through their offices. A redemption form may be downloaded and after filling it out and signing it, it may be submitted at any CAMS office. Other agencies such as Karvy Computershare, too provide these services.
A few things you need to consider before withdrawing your SIP investment:
- You need to stop your SIP before withdrawing/ redeeming the entire amount
The mandate for SIP is different from other mandates such as buying more units or selling the existing ones. This means that if your SIP is going on, you need to give the AMC a special mandate to close it.
If you think that by just redeeming your SIP units, your SIP will automatically stop, then you are wrong. This is because the SIP mandate is an instruction given by you to your designated bank account to transfer the SIP amount from your account to your MF. It usually takes 15 days to a month for your fund house to stop your SIP, so do bear that in mind when you decide to withdraw your investment.
- Units will be redeemed on FIFO basis
When you redeem your SIP units, the units that were purchased first, will be withdrawn first. This is call first in, first out (FIFO).
Let’s assume you purchased 1,500 units in your folio—of which you had bought 1000 units a few years back, and the balance 500 units, in the last six months. Thus, when you put in a request to withdraw 500 units, the 500 units will be withdrawn from the first 1000 units. The balance 1000 units that will remain in your account will be 500 units purchased a few years ago and the 500 units you purchased in the past six months.
- Have you held your units for a year?
If you withdraw/ redeem units that have been held for less than one year, your gains made on your investment will attract the short-term capital gains (STCG) tax.
It is suggested that you check how many units have completed a year. If the scheme you’ve invested in is really underperforming, then it is better to pay the short-term capital gains tax and withdraw all units. However, if you think you can stay invested in the scheme for one more year, then withdraw the units that have completed a year and then wait for another year before redeeming the remaining ones.