How quickly can you withdraw your investments?

Have you ever thought about the liquidity for an investment instrument? When you invest your money, usually you will look at the returns. However, it is also important to check about withdrawal.

In the case of some financial instruments you may have to pay a penalty while for others you may have to wait till a certain tenure.

Fixed Deposits and Recurring Deposits

When you opt for a fixed deposit (FD), you have to pick a tenure. Usually the tenure can range from seven days and 10 years. There are two types of bank FDs—with premature withdrawal and without premature withdrawal. The minimum amount you need to invest in FD which give you premature withdrawal option is Rs 1,000. While you can liquidate your FD prematurely and get your money back soon, you have to pay penal interest. In some cases you will not get an interest on your FD while in others you may have to pay 0.50-1% penal interest on your investment. For instance, if you have a 7-day FD, you will not get any interest if you withdraw prematurely. FDS without premature withdrawal option have a higher investment amount and can go up to Rs 1 crore.

Here you cannot close the FD before maturity. However, the bank may allow premature withdrawal of these deposits in exceptional circumstances such as in the event of direction from a statutory or regulatory authority or deceased claim settlement cases. Also any interest credited or paid up to the date of such premature closure will be recovered. If you had invested in tax-saving FDS, you will have a lock-in for five years, which means premature withdrawal can only be done in exceptional cases such as death — and the bank would not pay any interest on the principal amount deposited. Now with net banking and mobile banking, you can get back your FD amount in your bank account faster after you initiate the process. In case of recurring deposit (RD), you invest a certain fixed amount each month for a particular period. On maturity, you get the principal amount and the interest amount in your bank account. But in case of premature withdrawal, like in the case of FDS, the bank calculates interest on the period for which the deposit remained with the bank, and usually charges a penalty between 0.50% and 1% of the RD rate.

Small Savings and Mutual Funds

Do you invest in small savings instruments such as post office time deposits, National Savings Certificate, Public Provident Fund (PPF), Kisan Vikas Patra or Sukanya Samriddhi Account? All of these instruments have different withdrawal processes. In case of PPF, you can prematurely close the account only after the completion of five years, that too in case of medical emergency or higher education. Partial withdrawal in PPF is allowed only after the seventh year. The premature withdrawal comes with a penalty—you will get 1% less interest, as applicable from time to time. For Sukanya Samriddhi accounts, partial withdrawal (50% of the total amount) is allowed when the account holder turns 18, if she needs the money for education or marriage.

Mutual funds are one of the most liquid investments. In the case of regular liquid funds, you can get the money in the T+1 (the day you put your redemption request plus one working day). Some mutual fund houses allow you to withdraw money instantly like you withdraw from an automated teller machine. For equity mutual funds, the settlement period is T+3—it would take three working days to get the money in your account. If you have international equity mutual funds, you can expect 5-10 business days for redemption. In mutual funds, though you don’t have to pay a penalty, you will have to take a closer look at your taxation—shortterm and long-term capital gains tax— before withdrawing your money.