A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment company in the UK.
How can I withdraw my money from mutual funds?
One of the biggest advantages of mutual funds is liquidity – the ease of converting an investor’s units into cash.
Mutual funds, regulated by the Securities and Exchange Board of India (SEBI), have well-established rules to ensure liquidity. Open-end schemes, which comprise the vast majority of schemes, offer liquidity as an important feature. Liquidity is the ease of accessing or converting an asset into cash.
Once the refund is complete, the funds are transferred to the investor’s designated bank account, within 3 business days of depositing the redemption.
However, two issues must be kept in mind. One, there may be an output load period in some schemes. In such cases, repayments before a certain specific period, say 3 months, can attract a nominal load such as 0.5% of asset value. Fund managers impose such burdens to deter short-term investors. Secondly, the AMCs can indicate what the minimum amount for reimbursement is. Investors are advised to read all documents related to the scheme carefully before investing.