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-

Exit Load on Lumpsum Investment

Invested Amount	50,000
NAV at the time of investment	100
Units Bought	50000/100=500
NAV at the time of redemption	90
Exit Load	1% of (90*500)=450
Final Redemption Amount	45000-450=44550

Exit Load on SIP Investment

Exit load on SIP investment is also applicable but the calculation is different from the lumpsum investment. In SIP investment, every installment is treated as a separate investment. We can understand it with an example:

Suppose, in January 2018, an individual started a SIP of Rs.1,000 in a mutual fund scheme. If redeemed before 1 year, the system charges an exit load of 1 percent.

SIP Date	Units purchased
1 January 2018	10
1 February 2018	9
1 March 2018	8
1 April 2018	7
1 May 2018	6

Now, the investor stopped the SIP after 5 installments and on 15 February 2019 redeemed all the units.

So, to calculate the exit load, we will see how many installments have completed a 12 month period and the exit load will not be applicable for those units which have completed a 12 month period.

Here, SIP made on 1 January 2018 and 1 February 2018 have completed the 12 months period. So, the exit load will not be applicable for 19 units. But it will be applicable for the rest of the 21 units. Suppose, investor, redeemed the units at Rs.200 per unit.

Redemption amount = Rs.200 * 21 units = Rs. 4,200

Exit load = 1% * Rs.4,200 = Rs.42.

In this example the final redemption amount = (Rs.200 * 40 units) - Rs.42 = Rs.7,958

Frequently Asked Questions (FAQs)

1. What is an Exit load?

Exit load is a fee charged for the redemption of the units by the mutual fund houses. The exit load is only applicable if the units are redeemed before the specified holding period.

2. What is the minimum holding period to not be charged the exit load?

Every fund has a different specified holding period upon completion of which the exit load is not charged. Generally, for most of the equity funds, it is 12 months.

3. How is exit load calculated on SIP investment?

In SIP investment, every installment is treated as a separate investment and the holding period will be different for every installment. To better understand it, refer to the above-mentioned example.

4. Is exit load applicable on Equity funds?

Yes, exit load is applicable on equity funds. It is charged by the mutual fund houses and varies from fund to fund. It is not mandatory to charge the exit load. But most of the equity funds charge an exit load.

5. Is exit load charged on Debt funds?

Yes, exit load is applicable on debt funds too. However, there are some categories like overnight funds, ultra-short term funds, in which exit load is not applicable. Also, it varies across schemes in different categories. Some schemes charge exit load whereas some do not charge in a category.

6. Do exit load is charged if the units are redeemed at loss?

Yes, exit load is still charged if the units are redeemed at loss. As exit load is calculated on the redemption amount, not the invested amount.

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