Home
>
Articles
>
Exit Load in Mutual Funds: Definition, Types, Calculation & More | INDmoney

# Exit Load in Mutual Funds: Definition, Types, Calculation & More | INDmoney

Last updated: 19 Nov, 2021 | 10:53 am

When investors join or leave a mutual fund scheme, the company receives a fee. A 'load' is the term used to describe the cost charged. A price or amount charged to an investor for withdrawing a scheme as an investor is known as exit load

The exit load is not included in the expense ratio. Investors can withdraw their funds at any moment. The purpose of collecting this charge when investors depart a mutual fund scheme is to deter them from doing so, i.e., to reduce the number of mutual fund withdrawals. Exit loads are assessed differently by various mutual fund companies.

For instance, if you have invested Rs 1000 in mutual funds and your lock period is one year, you are expected to redeem this amount after one year only. However, if there is a situation that compels you to withdraw your investment earlier, say on the 9th month, you will be charged an exit charge based on the NAV of your investment.

Now, let's assume that after the 10th month, your mutual fund house does not charge an exit load. It means that if the investor decides to withdraw their investment after the 10th month, the exit load is not applicable irrespective of the fact that the withdrawal has taken place before one year.

However, it is essential to understand that the exit load charges depend on the mutual fund house. Different mutual funds have other exit loads. However, they do not vary exponentially. When investors redeem the fund after the agreed-upon duration, they will not be charged an exit load.

You can calculate exit load using the fund's NAV. Take a look at this example to see exit loads computation.

• In January 2019, an investor put INR 50,000 in a mutual fund with a NAV of INR 100.
• The total number of units available is 500. In March 2019, he invested another INR 30,000 at a NAV of INR 85. A total of 353 units is allowed.
• The investor desired to redeem a portion of his investment (INR 40,000) in December 2019 at the current NAV of INR 115.
• If the fund redeems within one year of purchase, there is a 1% exit load.
• The redeemed units following the fund's rules are chargeable at Rs 347.82 units (40,000/115).
• There would be a 400 exit load, and the total redemption amount will be INR 39,600.
• After March 2020, any investment withdrawn will be entirely free of any exit load because the investor will have invested for one year.

Calculating the exit load can be a complex process. To ease this out, you can use an exit load calculator. An exit load calculator will throw out the fee you will be charged easily, quickly, and in a hassle-free manner.

A variety of equity, hybrid, and debt mutual funds charges an exit load. Certain debt funds, such as overnight funds and most ultra-short duration funds, do not levy an exit load. Aside from overnight and ultra-short duration funds, many debt fund schemes, such as Banking and PSU funds, Gilt funds, and so on, do not levy an exit load.

Exit loads are typically greater in debt funds that use an accrual-based investment approach. They prefer investors to stay invested until the securities mature to decrease interest rate risk.

Since equity funds are for long-term investment horizons, exit loads in mutual funds are often more significant than those charged by debt funds. Exit loads are typical in actively managed equity funds. Many index funds, on the other hand, do not impose exit fees.

If you want to invest in equity funds while avoiding exit loads, ETFs are a good option.  On early redemption, hybrid and arbitrage funds charge an exit load. A typical investor believes that arbitrage funds are suitable for short-term investments only. However, most arbitrage funds levy exit fees on redemptions made within 15 to 30 days. Hence, an investor should consider parking their funds for a minimum of one month or longer to avoid exit load on arbitrage funds.

Conclusion

An investor must be informed of the exit fee while deciding to invest. No investor wants to be surprised by a fine in the form of an exit load. INDmoney helps you invest in different mutual funds without bagging an exit load. Using INDmoney's platform allows you to leverage tracking, zero commission, set financial goals, and manage finances across your family.

FAQs

A: The cost charged by Asset Management Companies (AMCs) when investors depart or redeem their fund units is known as an exit load.

Q2 When is exit load levied?

A: The primary goal of imposing an exit load is to deter investors from bailing out before the lock-in period expires.

Q3 How is exit load calculated in SIP?

A: The exit load will be equal to 1% X 500 (units) X 100 (NAV) = Rs 500.

Q4 When is exit load applicable?

A: An exit load is applicable on redemption before a stipulated period.

Q5 Is exit load applicable for STP?

A: You must make at least six capital transfers from one mutual fund to another to qualify for an STP. While there is no entering fee, SEBI enables fund houses to levy an exit fee. The exit load, however, cannot exceed 2%.

Q6 Is exit load applicable for SWP?

A: Aside from exit load, there is no additional fee for SWP. A particular minimum balance in the fund is necessary for your clients.

Q7 Is exit load applicable after 1 Year?

A: If you redeemed in February 2019, your January 2018 investment would have completed its one-year term. As a result, there is no exit load associated with its redemption.

Q8 Why exit load in mutual funds?

A: Mutual funds charge exit loads to deter investors from redeeming their shares before a set amount of time has passed. It preserves the financial interests of all scheme investors, particularly those who have remained invested.

Q9 Is exit load applicable if switching from one scheme to another within an AMC?

A: Even if you switch from one scheme to another within the source scheme's exit load period, mutual fund costs, or exit load, apply.

Q10 Is exit load deducted from capital gains for tax purposes?

A: Capital gains are, in fact, net exit loads. The exit load deducted by the AMC for early redemptions is not subject to short-term capital gains tax.