Know how to withdraw the SIP amount

Managing your investments through a Systematic Investment Plan (SIP) is quite a journey. It demands careful planning and a deep understanding of your financial objectives, not just in the beginning but also while redeeming your investment. As you inch closer to realising your financial targets, it is essential to start planning your SIP withdrawals. Find out how to withdraw the SIP amount in this article. 

What is an SIP, and is it the same as mutual funds?

An SIP involves investing a fixed amount of money at regular intervals into a mutual fund scheme of your choice. It is important to note that a mutual fund is an investment product, while an SIP is the method of investing in mutual funds. 

SIPs provide you with convenience, ease, and discipline. They utilise the principles of rupee cost averaging. By consistently investing a fixed amount at regular intervals, SIPs allow you to purchase more units when prices are low and fewer units when prices are high. As your investments grow, the power of compounding further multiplies your wealth. 

Once you have reached your target, withdrawing your SIP is straightforward. You can redeem your investments based on your needs and use the money for the intended purpose.

Process of withdrawing the SIP amount  

You have two options to redeem your SIPs: offline and online. Moreover, you can do it through any of the below mentioned mediums:

• Through a broker or distributor: 

  If you invested in mutual funds through a broker, you need to share your folio number and scheme details with the concerned party. They will provide the necessary forms and guide you through a smooth withdrawal process. Generally speaking, you will have to fill out a redemption request form with your name, folio number, scheme name, plan details, and the amount or number of units you want to redeem. After processing, the redemption amount will be credited to your bank account.

• Through a trading and Demat account: 

  You can access your trading and Demat account, locate your mutual fund holdings, and follow the platform's instructions to withdraw a specific SIP. The funds will then be transferred to your bank account.

• Through the Asset Management Company (AMC): 

  Connect with the AMC through their website or helpline number and share your investment details. You must complete an online or offline form with the specified SIP withdrawal amount and initiate the process.

• With Registrar and Transfer Agents (RTAs): 

  Contact your fund's RTA for help and provide investment specifics of your fund holdings. They will guide you through the steps and provide the necessary forms for withdrawal.

While the process of redemption is quick and simple, the decision to redeem your money requires some time and consideration.

Factors to consider while withdrawing your SIP amount -

• Lock-in period: 

  Equity Linked Savings Scheme (ELSS) is a tax-saving mutual fund that has a lock-in period of three years. If you plan to redeem your ELSS funds, you must wait for at least three years from the investment date. This three-year period applies to every SIP instalment separately.  

• Tax implications: 

  You must be aware of the tax implications for diffrent mutual fund schemes. For equity funds, if you redeem within one year, you will be taxed at 15% for short-term gains. If you redeem after one year, there is no tax on long-term gains of up to Rs 1 lakh in a financial year. Gains exceeding this limit are taxed at 10%. For debt funds, all gains from funds with 35% or less of their assets in equities are added to your taxable income and taxed according to your income tax slab.

• Exit load: 

  Some mutual fund schemes have an exit load, a fee you pay to withdraw your funds early. This can differ for different schemes. It is important to check the fund's terms to understand this better.

Conclusion 

The process to withdraw your SIP is quite straightforward and quick. However, you must be careful of the timing and weigh the pros and cons of redeeming your funds. Also, make sure your financial planning aligns with your goals.

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