What is Exit Load in Mutual Funds

Unlock the secrets of Exit Load in Mutual Funds to get to know its meaning, the diverse types it comes in, and how to calculate it effectively.
Exit Load
3 mins
29 January 2024

When we talk about mutual funds, exit load stands as a critical factor influencing investment decisions. Let us understand in depth the concept of exit loads, shedding light on its significance and implications for investors navigating the dynamic landscape of mutual fund investments.

What is an exit load?

Exit load, also known as redemption fee or back-end load, refers to a charge imposed on investors when they redeem or sell their mutual fund units within a specified period after purchasing them. It acts as a deterrent against short-term or frequent trading and encourages investors to adopt a long-term investment horizon. Exit load is designed to protect the interests of long-term investors by discouraging the disruptive effects of excessive trading on the fund's overall performance and transaction costs.

Types of exit loads

  • 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.

Frequently Asked Questions

What is a good exit load for mutual fund?

A good 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.

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