Exit Load in Mutual Funds: Types, Calculation Example

What is an exit load?

An exit load refers to the fee charged by the Asset Management Companies (AMCs) to investors at the time of exit or redemption of their fund units. If an investor leaves the fund in the lock-in phase, it is often referred to as the commission to fund houses or an exit charge. All funds do not impose an exit charge. Therefore, consider the exit load also, with its expense ratio, when selecting a plan. You have to remember that the expense ratio does not contain the exit load. The exit load of the mutual fund shall be the fee paid to the mutual fund house if the investors quit the scheme in whole or in part within a certain time from the date of the investment, as stated in the Scheme Information Document. Exit load for a mutual fund is a cost to deter investors from redeeming before a certain period of time. This is undertaken to preserve the financial interest of all of the scheme 's investors, in particular those who remain involved.

Exit Load on types of mutual fund

Various types of mutual funds charge diverse exit load fees. However, some types of debt funds do not charge the exit load of mutual funds, such as overnight funds and most ultra-short term funds. Among debt funds, certain schemes in such categories of debt funds such as banking and PSU funds, Gilt funds etc. do not charge any exit load in addition to overnight and ultra-short term funds.

In equity funds, mutual funds generally charge higher withdrawal loads than in debt funds since equity funds are designed for long-term investment tenures. Equity funds often charge exit loads. That being said, no exit loads are charged by several index funds. You can also invest in exchange traded funds (ETFs) that do not charge any exit loads if you wish to invest in mutual funds and avoid exit loads.

The SIP exit load is like all other mutual funds. A span of 12 months must be fulfilled for each SIP instalment in order to avoid the exit load for that specific.

How to calculate Exit Load?

On the fund's NAV, the exit load is determined. The fund manager determines the rate of the exit load. Various funds charge different exit loads. To understand how exit loads are measured, let's take an example. Suppose, in January 2018, an individual invested Rs . 50,000 in a mutual fund scheme. If redeemed before 1 year, the system charges an exit load of 1 percent. The NAV is Rs.100; that means there are 500 units for the investor.

The investor now wants to redeem the units within a 4-month period , i.e. in May 2018. In such a case, an exit load would have to be paid by the investor as follows-

Invested Amount50,000
NAV at the time of investment100
Units Bought50000/100=500
NAV at the time of redemption90
Exit Load1% of (90*500)=450
Final Redemption Amount45000-450=44550

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