Redemption
Candlefocus EditorFor fixed-income securities, redemption usually requires the holder to submit a written request to the issuer and provide payment in full of the face value of the security on or before the maturity date. This reimbursement is known as a 'redemption payment' and it also identifies the termination of the security's contractual obligations, such as redemption of interest income and principal.
For mutual fund investors, redemption is the process of redeeming their shares of the fund for cash or other securities. This type of transaction usually requires investors to submit a redemption request to the fund manager and may result in capital gains or losses. Investors can choose to redeem all or part of their shares of the fund and any fees and taxes that may be applicable to the redemption must be paid.
In some circumstances, redemptions can also refer to the repayment of debt. This type of redemption typically involves a predetermined cash payment that is due on a specific date, and the payment of all outstanding debt and interest.
No matter how one defines it, redemption is an important financial concept and is vital to understanding how various entities and individuals can receive or repay funds in a timely and efficient manner. It is important to note, however, that whether or not redemption results in a taxable event depends on the facts and circumstances of the transaction. All investors should consult a financial advisor to determine the tax implications of any redemption transaction.