Redemption

Key Takeaways

1. Redemption can refer to receiving something after a waiting period, at maturity, on selling or in lieu of a coupon.
2. At the time of redemption investors receive par value or face value of security.

Redemption can refer to receiving something after a waiting period, at maturity, on selling or in lieu of a coupon. 

Different financial instruments have different contexts for redemption.

Example

When money market products reach maturity, investors get redemption, ie. they submit the instrument (bonds, CDs) to receive the principal sum they had invested to receive those securities.

Shareholders can get redemption (or redeem their assets) by selling shares they hold, ie. get the market price on the shares at the time of selling.

In an ETF, when authorised participants or market makers take back the underlying securities that are part of the portfolio (and mirror an index) and return ETF creation units to the ETF creator (the fund house), the process is called redemption.

Redemption is paying back the principal amount of financial securities such as stocks, bonds, mutual funds, etc. to the investor with investment amount and any gain made on the investment. The redemption that is repayment of any fixed income securities is done either before or at the time of maturity date. Investors can ask for partial or full redemption i.e. he\she can sell part or all of their financial securities. At the time of redemption investors receive par value or face value of security.

Mutual Fund Redemption

In mutual fund redemption, an investor who holds the mutual fund and wishes to redeem it must inform his\her fund manager about their request. Then the request is processed in a certain amount of time. After process completion, the current market value or face value of the funds is paid to the investor.