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How do mutual funds process investor subscriptions and redemptions?

Mutual Fund Processing: Understanding Investor Subscriptions and Redemptions


In order to make informed trading and investing decisions, it is crucial to comprehend mutual fund processing, particularly investor subscriptions and redemptions. Whether you are a beginner looking to dip your toes in the mutual funds market or an advanced trader aiming to expand your portfolio, understanding these procedures is pivotal to successfully navigating the realm of mutual funds.

Mutual Fund Basics

Before we plunge into the specifics of investor subscriptions and redemptions, let’s briefly define mutual funds. A mutual fund is a type of investment avenue that consolidates capital from various investors to purchase securities such as stocks, bonds, and other assets. A skilled fund manager strategically invests the money that the investors in a mutual fund collectively pool together.

Investor Subscriptions

When an investor subscribes or buys shares in a mutual fund, this is termed as an investor subscription. In this process, the investor invests a certain amount of money into a specific mutual fund. The fund manager then uses the invested money to purchase securities on the investor’s behalf. The price at which an investor buys shares in a mutual fund is known as the Net Asset Value (NAV).

Application Procedure

Investor subscriptions begin with the investor submitting an application to the fund. This contains key details such as the name of the investor, the mutual fund scheme in which the investment is to be made, and the amount of money the investor intends to invest. The investor submits Know Your Customer (KYC) documents with the application, which is a crucial step in identity verification that regulators have mandated.

Processing & Allocation

Once the application is approved and the investment amount is received, the mutual fund house allots units to the investor based on the current NAV. One key thing to remember here is that mutual funds process investor subscriptions once every business day, after the market closes. Therefore, the NAV one gets is the one that is available at the close of the market on the day the mutual fund house receives the funds.

Investor Redemptions

On the flip side, when an investor decides to sell his mutual fund shares, this is referred to as an investor redemption. Here, the investor can choose to partially or completely redeem their holdings. The redemption price is again based on the NAV at the close of the market on the day of the redemption request.

Application Procedure

In the redemption process, the investor submits a redemption request to the fund house detailing the number of units they wish to sell. Like the subscription process, the fund house confirms the investor’s identity and the authenticity of the request before proceeding.

Processing & Payment

Post-verification, the fund house processes the redemption request. The investor’s units are sold at the prevailing NAV, subtracting any applicable charges, like exit load, if any. A key term here is the Settlement Period, which is the time taken to process a redemption request. Generally, the fund house credits the redemption amount to the investor’s specified bank account within 1-3 business days after the redemption request.


Understanding the mechanics of investor subscriptions and redemptions is indispensable for effective mutual fund trading and investment. Keeping track of the NAV, knowing the process of application, and familiarizing oneself with terms like exit load and settlement period can significantly improve the mutual fund investing experience. Despite the complexities, investing in mutual funds can be a rewarding endeavor offering diversification, professional management, and potential for substantial financial growth.