Remember the Holi gifts (especially cash) from relatives that went straight to mom’s custody. We’ve all been there! Our “passive income” is straight in the hands of our house’s governor and mind you, the withdrawals invited strict rules!
In retrospect, we did reap those benefits in the form of new clothes or gifts, and that felt pretty good. Well, Mutual Funds are similar. (What a smooth analogy, oof.)
Mutual Funds restrict or at the very least penalise withdrawals before a specific period. Let’s explore the withdrawal dynamic a little more.
The withdrawal dynamic significantly depends on the kind of fund invested in. The charges also vary from fund to fund and AMC to AMC.
These are low to moderate risk investments that invest in fixed income sources like bonds, debentures, treasury bills, etc.
The exit load for a typical Debt fund is 0%, and in rare cases where it exists, the lock-in period and exit loads are shallow.
They are taxed as per income slab if redeemed before three years. After three years, they are taxed at 20% and indexation benefits.
These are high to very high-risk mutual funds that invest in various companies to achieve different goals.
Different equity funds have lock-in periods varying from one week to one year. A typical equity fund has an exit load of 1%. However, some funds may have additional terms and conditions regarding withdrawals before the lock-in period.
The returns are taxed at a flat 15% if redeemed before one year and at a rate of 10% if redeemed after that on an annual return above Rs 1 Lakh.
To achieve investment objectives, these moderate to high-risk funds invest in various asset classes like equity, bonds, gold, etc. In simple words, these are the funds that aim to achieve the best of both worlds, i.e., equity and debt.
Most funds charge an exit load of 1% on redemption of more than 10% of the investment units. However, some funds may charge the exit load on redemption of 15% or more invested units.
Different funds are taxed differently based on the proportion of equity and debt investments. If the ratio of equity investment exceeds 65%, the investment is charged like equity funds or as debt funds.
This was some information on reaping the benefits of our favourite form of investment. However, do you know there are ways you can earn while withdrawing? More on that in another blog.
Till then, Stay Safe! Invest Safer!
Spenny provides its users with all three forms of Mutual funds, i.e. Debt Fund(ICICI Prudential Liquid Fund), Hybrid Fund(Aditya Birla Sun Life Balanced Advantage Fund), and Equity Fund (Aditya Birla Sun Life Flexi Cap Fund).
Systematic Withdrawal Plan(SWP) and Systematic Transfer Plan(STP) are two ways one can partially withdraw or transfer their investments, respectively.