Short answer: Mutual fund redemption is the exit from a mutual fund scheme, in which you sell some or all of the units you hold back to the fund. You are paid the number of units you redeem multiplied by the scheme’s current net asset value (NAV), which is the per-unit value of the fund’s holdings. You can redeem part of your holding or the whole of it.
Last reviewed: 10 November 2026
At a glance
| Option | What you specify | How the payout is worked out |
|---|---|---|
| Unit-based redemption | The number of units to sell | Units sold multiplied by the current NAV |
| Amount-based redemption | A rupee amount you want to receive | The system debits the number of units needed at the NAV to meet that amount |
| Redeem all | Nothing further; the entire holding is included | The whole holding is exited in one transaction at the current NAV |
| Partial redemption | Specific units, fewer than your total | Only the chosen units are sold; the rest stay invested |
What does redemption actually do to your holding?
A mutual fund is a pool of money collected from many investors and invested in securities such as shares and bonds. When you invest, the fund issues you units, and each unit represents a share of that pool. Redemption cancels the units you sell and gives you cash in return.
Your remaining units, if any, continue to be held in the scheme. A partial redemption therefore reduces your holding but does not close your account in that fund. A “redeem all” transaction exits your entire holding in the fund in one step.
How is the payout calculated?
The payout depends on the NAV at the time of the redemption, not on the price you paid when you bought the units. The NAV is set by the fund’s assets minus its liabilities, divided by the number of units outstanding. Because the NAV moves with the value of the underlying investments, the payout can be more or less than what you originally put in.
Here is a hypothetical example with invented figures. Suppose you hold 1,000 units and the NAV is ₹10 per unit. Redeeming 400 units pays 400 × ₹10 = ₹4,000, and 600 units remain in the scheme.
What is the difference between unit-based and amount-based redemption?
In unit-based redemption, you decide how many units to sell, and the payout is those units multiplied by the NAV. This suits you if you think in terms of units you own.
In amount-based redemption, you state the rupee sum you want, and the system works out how many units to debit at the NAV to produce that sum. Using the same hypothetical NAV of ₹10, a request for ₹5,000 would debit 500 units. The catch is that you do not choose the exact units sold, and the unit count depends on the NAV on that day.
When do investors usually redeem?
The guidance on redemption is that investors should redeem to meet a financial goal, or after a fund has persistently underperformed a benchmark. A benchmark is a market index or reference measure against which a fund’s performance is compared. Persistent underperformance means lagging that benchmark over a sustained period, not over a few days or weeks.
Redeeming because of a temporary fall in the market has a specific cost. If you sell after a dip, the loss on those units becomes final, and you will not share in any later recovery of those units. Short-term fluctuations are a normal feature of market-linked funds, so the NAV can move in either direction.
Where can you request a redemption?
Units can be redeemed through several routes:
- The AMC’s (asset management company, the firm that runs the fund) own portal or app.
- The broker that holds your units in a demat account (an electronic account that stores securities) or a trading account.
- Online platforms or distributors that sell the fund.
- Registrars such as CAMS and KFin Technologies, which maintain investor records for funds.
The route you use does not change the basic calculation of units multiplied by NAV. It affects where you submit the request and how you see your holdings.
What are the catches and risks?
Redemption is simple in mechanics but has a few points to check before you act:
- Market risk: Your payout depends on the NAV at redemption, which can be below your cost. A holding worth ₹1 lakh can be worth less when you sell it.
- Less control in amount-based requests: You name the rupee figure, not the units. The number of units debited changes with the NAV.
- Partial exits leave exposure: If you redeem only part, the remaining units still carry market risk.
- Redeem-all is final for that holding: Once your whole holding is exited, you hold none of that fund until you invest again.
Frequently asked questions
Can I redeem only part of my mutual fund investment?
Yes. Redemption can be for specific units or for your whole holding, so you can exit part of your investment and keep the rest in the scheme.
What is the difference between unit-based and amount-based redemption?
Unit-based redemption pays the number of units you choose multiplied by the NAV. Amount-based redemption starts from a rupee sum you choose, and the system debits the units needed at the NAV to meet that sum.
Should I redeem when the market falls?
The guidance is to redeem to meet a financial goal or after persistent underperformance against a benchmark, not because of temporary market fluctuations.
Where can I request a redemption?
You can use the AMC’s portal or app, the broker holding your units in a demat or trading account, online platforms or distributors, or registrars such as CAMS and KFin Technologies.
Sources and last check
Facts in this article were checked against the sources below on 10 November 2026. Rules and figures can change; check the primary source before acting.
- groww.in (broker education)
- upstox.com (broker education)
- kotakneo.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.