Redemption Steps for Mutual Fund Shares
Your investment needs do not remain static throughout your life. Instead, those needs change and evolve over time. Chances are you will need to redeem your mutual fund shares from time to time as you rebalance your portfolio and look for other ways to put your money to work.
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Check Your Cost Basis
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You should always check your cost basis in the fund before you sell your shares, since that cost basis determines how much you will owe in taxes. If you sell your mutual fund shares for more than your cost basis, you must pay capital gains taxes on the profit you made. This does not apply to mutual fund shares held within a tax-deferred account, but if you are working with a taxable account taxes definitely figure into the equation. In many cases the mutual fund company keeps track of your cost basis for you, otherwise you can use your purchase confirmation to determine how much you have invested over the years. You may not know the exact amount of your gain, since you will receive the price at the end of the trading day. You can, however, get a good idea of what to expect when you prepare your taxes.
Explore Your Options
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It is helpful to know what you plan to do with the money before you redeem your shares. If you want to keep the money invested, you need to research other options, including mutual funds in the same family, other mutual funds, individual stocks and other types of investments. If you do not have an investment in mind, you can ask that the proceeds of the sale be held in a money market account at the mutual fund company. This allows you to earn interest on the money while you decide what to do next.
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Log on to Your Account
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You can redeem your mutual fund shares online if you have established Internet access for your account. Once you log on, simply look for the trading menu, select the shares you want to sell and review the details of the trade. You can indicate how you want to receive the proceeds, and whether or not you want to exchange your shares into another mutual fund.
Redemption Instructions
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Once you have logged on to your account or called the mutual fund company, you need to provide instructions for the proceeds of the sale. If you are using the proceeds to buy another fund within the same family, you can simply instruct the representative to exchange one fund for another or make the exchange online. If you are cashing out of the fund entirely, you can receive the proceeds electronically by providing your bank routing number and account number. Otherwise you can request a paper check, but keep in mind that some mutual fund companies charge a fee for issuing a check.
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References
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