Redemption refers to the process of returning a financial instrument — such as a bond or mutual fund shares — to the issuer in exchange for the principal amount or net asset value. It essentially means cashing in your investment.
For bonds, redemption occurs at maturity when the issuer repays the face value to the bondholder. Some bonds can also be redeemed before maturity through call provisions. For mutual funds, investors can redeem their shares at any time at the current NAV.
For example, if you hold a $1,000 bond that matures in 10 years, at the end of that period, the issuer redeems the bond by paying you $1,000. Understanding redemption terms is important for planning your investment timeline and cash flow needs.