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When to Sell an Investment Fund?

Operating with investment funds is really simple, since these financial products are designed to bring investments closer to the average saver. Selling an investment fund means repaying our money (with the returns we have been able to obtain). In what situations can this be the case and how can we do it in the best possible way? In this article you will discover everything related to the rescue of an investment fund.

How to sell an investment fund?

Selling an investment fund is equivalent to undoing the investment operation carried out (totally or partially) and obtaining the money in cash.

It could also be the case of selling the shares of a fund to later invest in another. However, this operation is called a transfer between funds and, given its special characteristics and tax advantages, we will deal with it later. Now we refer to selling an investment fund to redeem the money.

Just as when we want to invest in a fund we will not have problems with the purchase of shares, because the management company guarantees us the counterparty and we have total and immediate liquidity, when we decide to redeem said shares we will also have the same liquidity: no It will be necessary more than to communicate our intention to sell the shares to the management company (or distributor) our intention and the sale is guaranteed.

The procedure is very simple.

At what price do we sell the investment fund shares?

A different matter is the price (called net asset value ) of the fund’s units. Units are subscribed at a certain net asset value and redeemed at another. The difference between the two determines the profitability that the investor may have.

At the time of canceling the investment in a fund, the units have the net asset value of the same day of the request or that of the following day (according to the prospectus of the fund).

It is important to keep in mind the so-called “cut-off time”. This information is also included in the fund’s prospectus and establishes a limit for requests that will be dealt with on the same day or which are considered to be made the following day. In other words, requests to sell an investment fund made after the cut-off time will be processed the following day (for the purposes of the net asset value to be applied).

How long does it take to sell an investment fund?

The depositary entity, as a general rule, will make the redemption payment of the fund within three business days . This date begins to compute from the day on which the net asset value is determined (that is, the following day or two days later ).

It could be that, exceptionally, the period for the final reimbursement of an investment fund is extended up to five business days .

Are there commissions or other details when selling an investment fund?

It is not common to see a commission for the redemption of investment funds, but it can exist. If the commission for reimbursement is present (which we will see in the information brochure), its amount cannot exceed 5% of the money reimbursed and it is automatically deducted from it.

On the other hand, it is also possible to find a requirement to maintain a minimum amount in the fund in order to be invested in it and maintain the condition of participant. Just as there are management companies that impose a notice of up to 10 days to request the sale of the fund’s shares, when they exceed a certain amount (normally greater than €300,000 ).

All these data are also included in the fund’s prospectus, available to the investor prior to subscription (so that he can make a reasoned decision).

Should taxes be paid on the redemption of an investment fund ?

One of the most important issues that an investor must keep in mind when canceling an investment is taxation. Taxes are inherent to the yields obtained.

The investment in funds is taxed only at the time of redemption, with a 19% withholding being made on the difference between the net asset value of the shares when they were subscribed and their redemption (that is, only the capital gains generated are taxed).

Profitability is considered capital gain or loss and is included in the savings tax base (not in the general tax base, preventing this base from increasing). The tax base of savings is taxed according to the following brackets:

  • Up to €6,000, 19% applies.
  • Between €6,000.01 and €50,000, 21% is applied.
  • Over €50,000 a 23% applies.

In any case, the investor may have a significant tax advantage if, instead of proceeding to cancel the investment fund, he transfers his shares to another fund.

How does the transfer of an investment fund work?

The transfer is nothing more than the sale of an investment fund and, immediately afterwards , making a subscription in another. This operation has no tax consequences, it is exempt from taxation. The definitive reimbursement is not considered made.

To carry out a transfer, the participant only has to contact the management company (or marketer) of the destination fund. It is a way of selling an investment fund without undoing the investment and, therefore, without having to report to the Tax Agency. It is very useful in most cases in which an investor decides to cancel his investment fund (as we will see later).

A transfer can be made between funds of the same management company or not . In the first case, the procedures are simpler and it takes less time (a maximum of three working days ). If the transfer is made between investment funds belonging to different management companies, it may take around eight business days .

In principle, a transfer between investment funds is not subject to commissions. In any case, since it involves the reimbursement of one and the subscription in another, the investor may find the corresponding commissions (the information brochures of the funds involved in the operation will clear up these doubts).

When is the time to sell (or transfer) an investment fund?

Now yes, the time has come to attend to the most common situations in which the participant can decide when to sell an investment fund.

It may be that the objective is to maintain the investment in the long term, but there may also be a series of circumstances in which the participant has to decide between canceling the investment fund or transferring the shares to another.

Some of the circumstances that push the participant to sell an investment fund would be :

  • When our investment objectives change and the fund does not adapt to them, it may be a good time to proceed with the transfer.
  • It is possible that there is a fund that charges high commissions and the transfer is decided .
  • It could also be the case that you need the money urgently. Due to the complete liquidity of the investment funds, the definitive redemption does not suppose any problem.
  • If our investment fund does not behave as it should or does not maintain the initial investment policy that led us to decide to place our money in it (another situation in which the transfer may be convenient, if we want to continue investing).

In any case, selling an investment fund (in the sense of definitively canceling the investment operation) is a decision that is generally made when liquidity is needed or the investment objective has been met. In cases in which the fund does not satisfy us, the participant can perfectly resort to a transfer, avoiding the tax consequences and taking advantage of the great tax advantage of these financial products.

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