Exit Load in Mutual Funds

Know about the exit load in mutual funds, its meaning, the diverse types it comes in, and how to calculate it effectively.
EXPLORE FUNDS
Exit Load in Mutual Funds
EXPLORE FUNDS
3 mins read
9 Mar 2024

Exit load in mutual funds refers to a fee charged by Asset Management Companies (AMCs) when investors redeem their mutual fund units prematurely. It acts as a deterrent against short-term investments, encouraging long-term commitment. The exit load amount is typically a percentage of the redemption value and varies based on the duration of the investment. Understanding exit loads is crucial for investors to make informed decisions about their investment tenure and potential costs associated with early withdrawals.

What is an exit load in mutual funds?

Exit load in mutual funds refers to a fee levied by Asset Management Companies (AMCs) when investors redeem their mutual fund units before a specified period. It acts as a deterrent against premature withdrawals and aims to discourage investors from frequent trading, promoting stability within the fund. The exit load is deducted from the Net Asset Value (NAV) of the mutual fund, reducing the overall returns for investors.

Exit loads vary among mutual fund schemes and are typically higher for shorter investment durations. For instance, if an investor redeems their units within a year of purchase, they may incur a higher exit load compared to redeeming after a longer holding period.

Understanding exit loads is essential for investors as it helps them consider the potential costs associated with early withdrawals. By aligning investment goals with the appropriate holding period, investors can mitigate the impact of exit loads on their returns and make informed decisions regarding their mutual fund investments.

Types of exit load in mutual fund

Contingent Deferred Sales Charge (CDSC)

Under the CDSC structure, the exit load decreases over time. Initially, the charges are higher, but they gradually decrease as the investor holds the units for a longer duration. If the investor holds the units beyond the CDSC period, no exit load is applied upon redemption.

Fixed Exit Load

In this type of exit load, the charges remain constant throughout the specified holding period. For instance, if a mutual fund has a fixed exit load of 2%, it will apply whether the investor redeems the units within one month or within one year of purchase.

Stepped Exit Load

Stepped exit load involves a graduated structure where the exit load percentage changes in steps over the holding period. The longer the investor holds the units, the lower the exit load percentage becomes. This structure intends to incentivize long-term investment by reducing the penalty for early redemption over time.

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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.

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