Hopefully, you're not cashing out a mutual fund to pay for a trip to Vegas or a flat-screen TV. There are more responsible reasons for accessing mutual-fund money, such as buying a home, paying for college or moving the cash to a better investment. In any case, you follow the same general process to execute the transaction.
Contact the company with which you own your mutual fund. In some instances, this is the actual company that runs the fund. You may also hold a mutual fund through a brokerage account, IRA or other type of investment account with a firm other than the one that puts its name on the mutual fund you want to sell. In any case, you can generally locate contact information on the email or snail-mail statements you receive detailing your mutual-fund account. Generally, you never even have to pick up a pen or your cell phone. Just go to the appropriate firm's website to initiate and, in most cases, complete the transaction.
Place an order to sell the desired number of shares or a set dollar value from the mutual-fund account. In most cases, you simply input online or tell the representative you get on the phone that you would like to sell X number of shares or cash out X number of dollars from your mutual-fund holding. In some cases, particularly if you are dealing directly with the company that runs the fund, you'll need to fill out a paper form, secure a signature guarantee from a commercial bank and mail it in to the fund to transact a redemption. This practice, designed to prevent fraud, is becoming less common.
Instruct the firm as to how you would like to receive the proceeds. If you sell the fund through your brokerage or other investment account, the proceeds generally sit in that account as cash. You can then request the money via paper check or electronic bank transfer. Most mutual-fund companies offer the same options for receiving sales proceeds. Of course, if you use an electronic bank transfer, you'll need to provide your bank's routing number or your account number, if the firm you are dealing with does not already have it on file.
- Note the tax nuance when you sell mutual-fund shares inside an IRA. If you sell a mutual fund but keep the proceeds in your IRA as cash or reinvest the proceeds in something else, you do not trigger a tax consequence. If, however, you sell a fund and request a withdrawal from your IRA, the IRS expects you to pay applicable taxes and penalties. Refer to IRS Publication 590 or consult your financial or tax adviser for details specific to your situation.
- As the U.S. Securities and Exchange Commission advises, some mutual funds charge fees when you sell shares. When you sell shares, the fund may charge a "deferred" or "back-end" load, which represents a percentage of the proceeds you receive from the sale. Sales loads cannot exceed 8.5 percent, as of November 2010. Some funds charge a redemption fee, which cannot be more than 2 percent. The difference between the two types of fees lies in the expenses a fund uses the fee to pay.