Every year, lakhs of investors redeem their mutual fund investments. But have you ever thought, is it just their loss?
Not really. It affects you, the Mutual Fund Distributor, too. Especially if their investments are mapped under your ARN and you’re using mutual fund software for distributors to manage everything.
These redemptions may seem like a routine part of investing, but they’re silently shrinking your AUM and your trail commissions.
Let’s break it down.
Why Do Investors Redeem Mutual Funds Prematurely?
There are many reasons why investors exit their mutual funds early, often losing the benefits of long-term compounding.
Here’s what we’ve seen commonly:
1. Financial Emergencies
● Sudden medical expenses
● Job loss or income dip
● Family obligations (weddings, education, etc.)
2. Poor Market Sentiment
● Fear during market corrections
● Panic selling after seeing short-term losses
● Misinformation from unverified sources
3. Lack of Proper Financial Planning
● No separate emergency fund
● Mixing long-term investments with short-term needs
● Not understanding the purpose of SIPs or equity funds
4. Impulse Decisions
● Taking advice from friends/family
● Comparing returns with other asset classes
● Booking small profits early
Is There a Way Out for MFDs?
Yes, there is.
As an MFD, you can’t stop every redemption. But what if you could offer a smarter solution through mutual fund software for IFA that helps investors get funds without exiting their investments?
That’s where Loan Against Mutual Funds (LAMF) comes into play. Let’s understand this better.
What Is Loan Against Mutual Funds (LAMF)?
LAMF is a facility where investors can pledge their mutual fund units and get a loan from the bank or NBFC without redeeming the investment.
And the best part? It’s now possible to offer this directly through your software.
Why Should MFDs Offer LAMF Through Their Software?
If you’re using a robust software for distributors, integrating LAMF is a game-changer for both your business and your investors.
Here’s how it helps you:
Reduce Redemptions
● When investors get liquidity via LAMF, they don’t need to redeem units
● Their investment stays intact, and your AUM doesn’t shrink
Double Trail Commission
● Since the units remain invested, you continue earning trail commissions
● Plus, if the investor uses the funds for further investment, another layer of commission!
Stickier Clients
● You become a one-stop solution, not just for investments, but for financial emergencies too
● Clients feel supported and are less likely to move elsewhere
Paperless Convenience
● Most back office software platforms now support 100% digital LAMF journeys
● No manual forms, no branch visits—just seamless transactions
Why LAMF is a Win for Your Investors Too
It’s not just about your AUM and trail commissions. LAMF brings real benefits to investors, too.
Quick Access to Funds
● Funds get disbursed quickly, often within 24 hours
● Much faster than personal loans or borrowing from friends
Lower Interest Rates
● Generally cheaper than credit card interest or instant personal loans
No Need to Break SIP Goals
● Long-term investment goals stay on track
● SIPs continue, and compounding keeps working
Peace of Mind
● Investors know they can rely on you during tough times
● Builds long-term trust and confidence
When Should You Introduce LAMF to Your Clients?
MFDs who’ve added LAMF to their services say this: “It’s best to talk about it before the emergency hits.”
So don’t wait till investors ask to redeem; instead, educate them.
Final Thoughts
Redemptions are a reality, but unnecessary redemptions? That’s something you can reduce.
By offering Loan Against Mutual Funds through your software, you’re not just protecting your AUM—you’re helping investors build wealth, uninterrupted.
Because the more investor problems you solve, the stronger your business becomes.
