Exit Load in Mutual Funds

An exit load is a fee imposed by a mutual fund company when an investor redeems their units before a specified period. It is calculated as a percentage of the redemption amount. For example, if an investor redeems units worth Rs. 10,000 and the exit load is 1%, Rs. 100 will be deducted as the exit load, and the investor will receive Rs. 9,900 as the redemption proceeds.
What is Exit Load in Mutual Fund
3 mins read
16-July-2025

Imagine investing in a mutual fund, watching your money grow steadily, and then one day deciding to redeem your units. But just before you get your payout, a small fee is deducted—called an exit load. It's not a random charge. It is designed to shape investor behaviour, protect fund performance, and promote long-term commitment. Understanding these small charges in advance can help you preserve more of your wealth and avoid unexpected deductions on your future redemptions. Compare Mutual Fund Options Now!

In this article, we’ll simplify everything you need to know about exit load—what it is, how it works, when it’s applied, and how it can affect your returns. Whether you’re investing for the short term or building long-term wealth, understanding exit load is key to making smarter mutual fund decisions.

What is an exit load in mutual funds?

Exit load is a fee that mutual fund companies charge if you redeem (sell) your mutual fund units before a specified time period. It’s usually expressed as a percentage of your redemption amount. So, if you redeem Rs. 10,000 and there’s a 1% exit load, you’ll pay Rs. 100, and receive Rs. 9,900 in your account.

Why does this fee exist? It’s there to discourage short-term withdrawals that can disrupt the fund’s performance. When you exit early, the fund manager might be forced to sell investments to maintain liquidity, which could affect other investors.

Exit loads differ across mutual fund types and are generally higher for short-term exits. For instance, equity funds often charge a 1% exit load if you redeem within 12 months. But if you stay invested longer, you can usually exit without any fee. Knowing this helps you plan better and avoid unexpected deductions from your returns. By understanding how exit loads work, you can structure your investment journey with minimal cost leakage and better long-term returns. Open Your Mutual Fund Account Today!

What is the purpose of exit load?

Exit loads serve two main purposes:

  1. To discourage frequent trading: Many investors tend to enter and exit mutual funds based on short-term market movements. This behaviour can make it difficult for fund managers to maintain a consistent portfolio strategy. Exit loads act as a barrier to impulsive redemptions, encouraging investors to stay invested.
  2. To protect long-term investors: Early withdrawals can harm the interests of investors who are in it for the long haul. By penalising short-term exits, exit loads promote portfolio stability and ensure that long-term investors aren’t disadvantaged due to others’ short-term actions.

Types of exit load in mutual fund

Not all exit loads are created equal. Different mutual fund schemes use different structures to apply these charges, depending on their investment style and objectives. Here are the most common types of exit loads:

  1. Contingent Deferred Sales Charge (CDSC):
    This type of exit load reduces over time. The longer you stay invested, the lower the charge. If you hold the fund for the full recommended tenure, you may not have to pay anything at all when you exit.
  2. Fixed Exit Load:
    In this case, the exit load remains constant throughout the specified holding period. For example, if the fund charges a 2% exit load for redemptions made within one year, you’ll pay the same 2% whether you redeem after one month or eleven months.
  3. Stepped Exit Load:
    This one works on a tiered structure. The exit load decreases step by step as your investment matures. So, if you redeem after three months, the load might be 2%, but if you redeem after six months, it could reduce to 1%, and eventually drop to zero beyond a year. This method rewards patience and encourages long-term investing.

How to calculate exit load

Calculating exit load isn’t complicated—it’s usually just a percentage of your redemption amount, deducted if you exit early. But the actual math can vary based on how and when you invested.

Let’s look at a simple example:

Say you invested in a mutual fund where a 1% exit load is applicable for redemptions made within one year. If you invested Rs. 50,000 (500 units at NAV Rs. 100) and decide to redeem it after 4 months, 1% of Rs. 50,000—i.e., Rs. 500—will be deducted. You’ll receive Rs. 49,500.

SIPs, however, are slightly more nuanced. That’s because you’re buying units every month at different NAVs, and each month's units have their own 365-day clock. If you withdraw before a specific month's units complete a year, an exit load applies only on those specific units.

Here’s how it plays out:

Date

NAV (Rs.)

Units Purchased

Cumulative Units

Tenure (Days as on 1/08/24)

01/06/23

100

100

100

427

01/07/23

102

98

198

396

01/08/23

105

95

293

365

01/09/23

103

97

390

335

01/10/23

104

96

487

304

01/11/23

102

98

585

274

01/12/23

101

99

684

243

01/01/24

99

101

785

212

01/02/24

100

100

885

184

01/03/24

102

98

983

153

01/04/24

101

99

1082

123

01/05/24

102

98

1180

92

01/06/24

104

96

1276

62

01/07/24

103

97

1373

31

01/08/24

105

95

1468

-


Now, say you redeem 1,000 units on 1st June 2024. Here’s what happens:

  • 293 units (invested before 1st August 2023) have completed 365 days—no exit load.
  • 707 units are still within the 365-day window and will attract a 1% exit load.

So, the exit load = 707 units × NAV Rs. 105 × 1% = Rs. 742.
That means your payout = Rs. 105 × 1,000 units – Rs. 742 = Rs. 1,04,258

Moral of the story? With SIPs, each instalment has its own exit load timeline. So, if you redeem early, only the newer units get penalised not the whole investment.

Exit load on different mutual fund schemes

Exit loads aren’t uniform across all types of mutual funds. Here’s how it generally varies:

  • Equity Mutual Funds:
    Typically, there's a 1% exit load if you redeem within 12 months. Hold the units longer, and the charge often drops to zero.
  • Debt Mutual Funds:
    Short-term debt funds may have exit loads ranging from 0.5% to 1% if redeemed within 6–12 months. But many ultra-short or liquid debt funds don’t charge any exit load at all.
  • Hybrid Funds:
    These follow rules based on their equity or debt composition. If it is an equity-heavy hybrid fund, it may mirror equity fund exit load structures.
  • Liquid Funds:
    These are designed for high liquidity, so most don’t impose exit loads after 7 days. If you withdraw earlier, a small charge may apply.
  • International or Thematic Funds:
    Since these are more niche and volatile, exit loads may go up to 2%, particularly if the fund needs to manage high transaction costs or currency risks.

Understanding fund-specific exit load rules helps you time your redemptions better and avoid unnecessary deductions that eat into your final returns. Compare Mutual Fund Options Now

How Entry Load affects your investment

Entry load used to be a common charge in mutual funds—a small fee deducted right at the time of investment. While SEBI has now banned entry loads on most mutual fund schemes, it's still helpful to understand its impact.

Imagine you invest Rs. 10 lakh in a mutual fund with an entry load of 2.5%. That means Rs. 25,000 is deducted upfront, and only Rs. 9.75 lakh is actually invested. If the NAV is Rs. 50, you’ll get 19,500 units instead of 20,000. That 500-unit difference can snowball into a large gap in value over the years.

In contrast, with zero entry load, the entire amount goes into buying units—maximising your returns from the start. While this charge is mostly obsolete today, understanding how it worked helps you appreciate the cost structures that still exist—like the exit load.

5 Reasons to exit mutual funds

Knowing when to exit a mutual fund is just as important as knowing when to invest. Here are five valid reasons you might consider pulling out:

  1. Underperformance:
    If your fund consistently lags behind its benchmark and peers for over a year or two, it might be time to move your money elsewhere.
  2. Achieved Goals:
    Planning to buy a house, fund a child’s education, or take that dream vacation? Once your investment meets its target, there’s no harm in cashing out.
  3. Rebalancing Needs:
    If equity markets have shot up and now make up a larger part of your portfolio than intended, you might need to rebalance—by redeeming from one fund and investing in another.
  4. Change in Strategy:
    Sometimes, a fund may shift its focus—say from large-cap to mid-cap stocks, or from one sector to another. If the new strategy doesn’t match your goals, consider exiting.
  5. Liquidity Needs:
    Life is unpredictable. You might need cash for a medical emergency, a sudden opportunity, or unplanned expenses. Having funds in a redeemable investment helps.

When is exit load charged?

Exit load is only charged when you redeem your mutual fund units before the completion of a specified holding period. Each mutual fund scheme defines this period differently based on its nature and strategy.

For example:

  • Liquid Funds often don’t charge any exit load after 7 days.
  • Debt Funds may have short holding periods with low or no exit loads.
  • Equity Funds, being long-term investments, usually have a 1% charge if you redeem within 12 months.

Once you cross the required time frame, you’re free to withdraw without penalty. But if you exit early, the specified exit load is deducted from your proceeds.

Always read the Scheme Information Document (SID) carefully. That’s where the exact exit load policy is mentioned—so you don’t get caught off guard when you redeem.

Implications for investors

Exit loads may appear minor, but they can have a real impact on your returns—especially if you're someone who tends to withdraw early or invest with a short-term mindset. Imagine building gains over a few months, only to see a portion wiped out just because you exited a bit too soon.

For long-term investors, exit loads are usually not a concern. But for others—those saving for short-term goals, or who might need to redeem for emergencies—these charges can reduce the effective value of your investment.

This makes it important to know the exit load period in advance and align your investment horizon accordingly. Exit loads should never be the only factor in your decision-making, but they’re definitely a cost worth planning around.

Considerations for investors

Before you commit to any mutual fund, it’s essential to do your homework—especially when it comes to exit loads. Here's what smart investors always check:

  • Read the fine print: Look into the offer documents, especially the Scheme Information Document (SID) and Key Information Memorandum (KIM). These documents outline the exit load terms clearly.
  • Match your investment horizon: If you’re not sure you can hold the investment for the exit load period, consider funds with no or lower exit loads.
  • Diversify smartly: Don’t put all your money in one type of fund. Mix it up so that you're not penalised for early exits across the board.
  • Get expert advice: If you're uncertain, a financial advisor can help you select funds that match your goals and liquidity needs.

Conclusion

Exit load is more than just a small fee—it’s a behavioural nudge built into mutual funds to encourage investors to think long-term. It deters impulsive exits, supports better fund management, and protects the returns of serious investors.

While the idea of a fee might feel discouraging at first, understanding how exit loads work puts the control back in your hands. With a little planning, you can avoid them entirely, or at least minimise their impact. The key lies in knowing the rules, aligning your goals, and staying invested with intention.

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Frequently asked questions

What is the best exit load for a mutual fund?

The best exit load for a mutual fund is one that is low or non-existent. The exit load is a fee charged by mutual funds when an investor sells or redeems their units before a certain period of time has elapsed. It is usually a percentage of the Net Asset Value (NAV) of the mutual fund units held by investors.

What is exit load in mutual fund with no lock in period?

Exit load in mutual funds with no lock-in period refers to the fee that the Asset Management Companies (AMCs) charge investors at the time of exiting or redeeming their fund units. It is also referred to as the commission to fund houses or exit penalty if an investor exits the fund in the lock-in period. Not all funds levy an exit charge, hence while choosing a plan, do consider the exit load too, along with its expense ratio.

What is 1% exit load in mutual fund?

1% exit load in mutual funds refers to a fee charged by mutual funds when an investor sells or redeems their units before a certain period of time has elapsed. The exit fee is usually a percentage of the Net Asset Value (NAV) of the mutual fund units held by investors.

Which mutual fund has 0 exit load?

There are several mutual funds that have zero exit loads. Investors are suggested to do research before investing their hard earned money.

Will I have to pay mutual fund exit load, even if I am selling at a loss?

Yes, you will have to pay an exit load even if you are selling at a loss when selling mutual fund units.

Is exit load applicable after 1 year?

Yes, exit load may still apply after 1 year depending on the mutual fund scheme's terms and conditions. Exit loads are typically imposed to discourage premature withdrawals and promote long-term investments. Some mutual funds may continue to charge exit loads even after 1 year to maintain stability within the fund.

Why is the exit load charged?

Exit loads are charged to discourage frequent trading and premature withdrawals by investors. This fee helps maintain the stability of the mutual fund and aligns investors' interests with long-term investment objectives. Additionally, exit loads contribute to reducing transaction costs and potential disruptions within the fund.

What is the exit load in SIP?

The exit load in SIP (Systematic Investment Plan) refers to the fee charged upon redeeming SIP investments prematurely. The exit load amount varies depending on the mutual fund scheme and the duration of the investment. It is crucial for investors to be aware of the exit load conditions before investing in SIPs.

How do you avoid exit load in mutual funds?

Investors can avoid exit loads by adhering to the specified holding period mentioned in the mutual fund scheme. Choosing funds with shorter lock-in periods or no exit loads can also help avoid these charges. Additionally, investors should carefully read the scheme's offer document to understand the exit load conditions and plan their investments accordingly.

What is a good exit load for a mutual fund?

A good exit load for a mutual fund typically ranges from 0% to 1%. It is charged if units are sold before a specified period, often one year. Lower exit loads are preferred as they reduce the cost of exiting the investment early.

How to avoid exit load in SIP?

To avoid exit load in a Systematic Investment Plan (SIP), hold each installment for the duration specified by the fund. For instance, if the exit load applies for one year, ensure each SIP installment is held for at least one year before redeeming.

Do low duration funds have exit load?

Low duration funds can have exit loads, but they are generally lower or absent compared to long-term funds. The specific exit load depends on the fund’s policy and is typically designed to discourage short-term trading.

How to calculate exit load?

Exit load is calculated as a percentage of the redeemed amount. For example, if the exit load is 1% and you redeem Rs. 10,000, the exit load charged will be Rs. 100. The formula is: Exit Load = (Redeemed Amount) * (Exit Load Percentage).

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The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

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