Partial Withdrawal from Mutual Funds
A partial withdrawal means taking out some of your money and leaving the rest invested. In a mutual fund it is called a partial redemption, and you do it by naming an amount or a number of units rather than closing the folio.
The part people miss is that you do not choose which units leave. The fund house does, by a fixed rule, and that rule decides whether you pay an exit load and whether the gain is taxed as short term or long term. On a running monthly plan it usually works in your favour, and the arithmetic below shows by how much.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, and a distributor of portfolio management services registered with APMI, APRN10201. This page is general information, not a computation of your position.
What a partial withdrawal is, and what it is not
Partial redemption is the mutual fund version, and it keeps your folio open. You ask for an amount or a number of units, the fund sells that many units at the applicable NAV, and the rest of your holding carries on as before.
Two things it is not. It is not a loan, so nothing has to be repaid and no interest is charged. And it is not a pause on your monthly plan: a systematic investment plan keeps running after a partial withdrawal unless you stop it separately.
A switch from one scheme to another is treated as a redemption of the first scheme, so a partial switch counts for exit load and for tax, even though no money reached your bank.
Which units go out first
First in, first out. The oldest units you bought leave first, then the next oldest, until the amount you asked for is covered. Your newest units stay exactly where they are. You cannot nominate a different set, and no fund house lets you pick.
This is set out in the scheme information document rather than in a SEBI rule, and every major fund house applies it. It matters because both costs that attach to a partial withdrawal depend on how old the redeemed units are.
Exit load usually applies only to units held for less than a stated period, often a year. Tax depends on the holding period of each redeemed unit, counted from its own purchase date.
So on a folio built up over time, the units that leave first are the ones most likely to be past the load period and past the twelve-month line. Taking money out of a long-running plan is cheaper than the same withdrawal from a recent one, and the difference is not small.
What a partial withdrawal costs
Two charges, and one of them is tiny. Exit load applies where the units leaving are still inside the load period. Securities transaction tax, or STT, applies on redemption of equity-oriented units at 0.001% of the redemption value, deducted from the proceeds. Debt schemes attract no STT at all.
Stamp duty of 0.005% is charged when you buy units, not when you sell them, so it plays no part here. SEBI’s rules on exit load are worth knowing, because two of them protect you.
A fund house cannot raise the exit load above the level stated in the offer document for money already invested. SEBI’s investor FAQ states that “any change in the load will be applicable only to prospective investments and not to the original investments”.
Where a scheme changes its fundamental attributes or permanently changes its asset allocation, unit holders can exit at the prevailing NAV without any exit load. The fund house announces this when it happens, and the notice states how long the window stays open.
The load itself is deducted from the proceeds rather than billed. A 1% load on 1,000 units at a NAV of ₹50 is ₹500, and ₹49,500 reaches you.
A worked example: ₹1,00,000 out of an 18-month plan
Numbers make the first-in-first-out rule concrete, and a running monthly plan is the case most people are actually in. The figures below come from one assumed NAV path, worked through step by step, so you can follow the same method against your own statement.
Illustration, not a quotation. ₹20,000 invested monthly for 18 months into an equity scheme. NAV starts at ₹100 and rises 1% a month, reaching ₹118.43. Exit load of 1% on units held under 365 days. You withdraw ₹1,00,000 in month 18.
₹1,00,000 at ₹118.43 is 844.4 units. Taken oldest first, that is covered before the sixth instalment:
| Instalment | Units taken | Bought at | Age at withdrawal | Gain |
|---|---|---|---|---|
| Month 1 | 200.0 | ₹100.00 | 17 months | ₹3,686 |
| Month 2 | 198.0 | ₹101.00 | 16 months | ₹3,452 |
| Month 3 | 196.1 | ₹102.01 | 15 months | ₹3,219 |
| Month 4 | 194.1 | ₹103.03 | 14 months | ₹2,989 |
| Month 5 | 56.2 | ₹104.06 | 13 months | ₹807 |
Every unit that left was more than twelve months old. So:
- Exit load: ₹0. None of the redeemed units was inside the 365-day window.
- STT: ₹1. At 0.001% of ₹1,00,000. Real, and not worth planning around.
- Gain: ₹14,154, all long term. Equity long-term gains carry a ₹1.25 lakh exemption each year. Where this is your only equity long-term gain in the year, the tax is nil. The exemption is annual and applies across all your equity gains together, so other redemptions in the same year use it up.
Had the newest units gone first instead, the same ₹1,00,000 would have cost ₹1,000 in exit load and produced ₹1,941 of short-term gain, taxable at 20%.
The rule you do not control is working for you. What you control is leaving the plan running long enough for old units to exist.
Tax on a partial withdrawal
Each redeemed unit is taxed on its own holding period, measured from the day that unit was bought rather than from the day the folio opened. One redemption can therefore produce both long-term and short-term gains in the same transaction, and your statement will show them separately.
For equity schemes the line is twelve months. For most others it is twenty-four, and one category has no holding period at all. The rates and categories are set out in short-term capital gain tax on mutual funds.
Two points specific to taking out only part of a holding:
No tax is deducted at source for a resident investor. The fund pays the full proceeds, less exit load, and the tax is yours to report and pay. Non-residents are treated differently.
Only the gain is taxed, not the amount withdrawn. Taking ₹1,00,000 out of a folio does not mean ₹1,00,000 of income. In the example above, ₹85,846 was return of your own capital and ₹14,154 was gain.
When the money reaches you
Three working days for most schemes, and the fund owes you interest where it misses that deadline. The clock runs from the date of redemption, not from the date you placed the request, which matters when a request lands after the cut-off and takes the next day’s NAV.
SEBI requires redemption proceeds to be transferred “within three working days from the date of redemption or repurchase”. Schemes holding at least 80% of assets in permissible overseas investments get five working days, because the underlying markets settle on their own calendar.
Where the fund misses that deadline it must pay interest at 15% a year for the delay. Few investors know this and fewer claim it.
| Amount | Days late | Interest the fund owes |
|---|---|---|
| ₹2,00,000 | 3 | ₹247 |
| ₹5,00,000 | 7 | ₹1,438 |
Payment reaches you only through the banking channel, into a bank account registered on the folio. A change of bank details before a large redemption adds a verification step, so make the change first and redeem after it is confirmed.
Which day’s NAV applies is a separate question, decided by the cut-off rules in NAV meaning in mutual fund.
Where a partial withdrawal is not allowed
Three cases where taking out part of the money is simply not available, and the reasons differ in each. Two are features of the product you chose, written into the scheme documents. The third is a different product altogether, which the original version of this page covered.
ELSS inside the lock-in. Equity linked savings schemes carry a three-year lock-in that runs from each instalment separately. A monthly plan therefore frees up units month by month, and only units that have completed their own three years can be redeemed.
Close-ended schemes. Units cannot be redeemed from the fund house before maturity at all. Where the scheme is listed, the exchange is the only exit, and listing does not guarantee a buyer at a price you would accept.
Recurring deposits. A bank recurring deposit is a different product with a different answer: partial withdrawal is usually not permitted, and the practical choice is to keep the deposit or close it. A few banks allow a limited partial withdrawal while the account runs. The terms sit in recurring deposits in India.
A partial withdrawal on a schedule
A systematic withdrawal plan is a standing instruction to take the same amount out every month or quarter, instead of placing each request yourself. The fund redeems whatever number of units covers that amount on the date, and the instruction runs until you stop it or the units run out.
Mechanically nothing changes. Each instalment is a partial redemption, follows first in first out, attracts exit load on any units still inside the load period, and produces a capital gain that you report. Twelve monthly withdrawals produce twelve separate gain calculations across the year.
What it adds is that the amount and the date are fixed in advance, which suits money being drawn for a regular commitment. What it does not do is protect the folio: if the withdrawals run faster than the scheme grows, the units run down.
Frequently Asked Questions
Yes. The two are separate instructions. The plan keeps buying units on its date unless you stop it, and a redemption in between does not cancel it.
Naming an amount is simpler, and the fund sells whatever number of units covers it at the applicable NAV. Naming units is exact on the unit count but leaves the rupee figure dependent on that day’s NAV.
Not by itself. Some schemes do apply a minimum balance below which the remaining units are redeemed and the folio closed, so check the scheme information document before withdrawing nearly everything.
Yes, for every purpose that matters. Switching out of a scheme is a redemption of that scheme, so exit load and capital gains tax both apply even though you never saw the money.
Not for a resident investor in a mutual fund. You receive the proceeds in full, less any exit load, and report the gain yourself. Non-residents are subject to withholding.
The fund owes interest at 15% a year for the period of delay, over and above the proceeds. Raise it with the fund house first, and escalate through SEBI’s complaint route if it is not settled.
No. The lock-in applies to each instalment from its own date, so only units that have completed three years can be redeemed, partially or otherwise.
The money withdrawn stops compounding, so the remaining holding grows from a smaller base. Whether that trade is worth making for the use you have in mind is your call, and the choice is yours.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.