In the investing world, the word “redemption” is used in reference to bonds and mutual funds. In both cases, redemption refers to cashing out the value of the financial instrument.   In the case of bonds, redemption occurs when a bond is returned to the issuer in exchange for its cash value. Usually, this happens when the bond matures. The bondholder returns the bond to the issuer, and the issuer returns the bond’s principle value to the buyer. A bond can also be redeemed before it matures if the issuer calls the bond. Calling a bond is a forced redemption. Some bonds are callable and some are not. If a bond is callable and the issuer calls the bond, this forces an early redemption, before maturity. In this case, the issuer usually pays the bondholder a premium, in addition to the face value of the bond, to repay the investor for lost income. Redemption of bonds happens at the discretion of the issuer, or simply at the end of the bond’s maturity. Redemption also refers to the return of mutual funds in exchange for their cash value. When you sell an open-ended mutual fund back to the issuer, the mutual fund company is obligated to return your money within a reasonable amount of time, no longer than seven days.  Redemption of mutual funds happens at the discretion of the investor.