Economics Mutual Funds Questions Medium
The concept of redemption in mutual funds refers to the process of selling or liquidating mutual fund units by an investor. When an investor wishes to redeem their mutual fund units, they submit a redemption request to the mutual fund company or the asset management company. The redemption request specifies the number of units the investor wants to sell.
Upon receiving the redemption request, the mutual fund company calculates the redemption price based on the net asset value (NAV) of the mutual fund on that particular day. The NAV represents the per-unit value of the mutual fund, which is calculated by dividing the total value of the fund's assets by the number of outstanding units.
After the redemption price is determined, the mutual fund company pays the investor the redemption proceeds, which is the redemption price multiplied by the number of units being redeemed. The payment is typically made within a specified time frame, such as a few business days.
Redemption in mutual funds provides investors with the flexibility to exit their investment and convert their units into cash. It allows investors to realize their gains or losses based on the performance of the mutual fund. However, it's important to note that mutual funds may have certain restrictions or charges associated with redemption, such as exit loads or redemption fees, which can vary depending on the fund and the holding period.