An exit load is a fee which mutual fund houses/asset management companies charge the investor when the investors redeems funds and exits a mutual fund scheme partially or fully within a certain period of time from the date of investment. Different mutual funds houses charge different fees for different schemes as an exit load.
The main purpose of charging exit load is to discourage investors from redeeming before a certain time period. This is done to protect the financial interest of all investors in the scheme, especially the ones who remain invested. Not all mutual fund schemes charge exit load. You need to keep in mind the ‘exit load’ aspect when you invest in a mutual fund scheme.
How is exit load calculated?
Exit load is charged as percentage of the redemption amount at applicable NAVs and the exit load period (period from the date of purchase). Let us understand how it is calculated with examples.
Suppose ABC scheme charges 1% exit load for redemptions within 365 days from date of purchase. Niraj invested in ABC scheme and now redeems 500 units within one year from date of investment. Let us assume the NAV is Rs 100. The exit load will be Rs 500 [1% x 500 x 100]. It is calculated as [exit load % x NAV x number of units redeemed]. So Niraj will receive an amount of Rs 49,500 [500 x 100 – 500] on redemption.
Let us understand how exit load is calculated in case of SIP. Devika started a SIP of Rs 10,000 on 1 June 2021 in ABC scheme. The scheme charges 1% exit load for redemptions within 365 days from date of purchase. Below is her SIP history for past 1 year.
| Date | NAV (Rs) | Units Purchased | Cumulative Units | No. of days upto redemption date (as of 1 Sep’22) |
| 01-06-2021 | 100 | 100 | 100 | 457 |
| 01-07-2021 | 102 | 98 | 198 | 427 |
| 01-08-2021 | 104 | 96 | 294 | 396 |
| 01-09-2021 | 105 | 95 | 389 | 365 |
| 01-10-2021 | 106 | 94 | 483 | 335 |
| 01-11-2021 | 104 | 96 | 579 | 304 |
| 01-12-2021 | 102 | 98 | 677 | 274 |
| 01-01-2022 | 100 | 100 | 777 | 243 |
| 01-02-2022 | 100 | 100 | 877 | 212 |
| 01-03-2022 | 98 | 102 | 979 | 184 |
| 01-04-2022 | 96 | 104 | 1,083 | 153 |
| 01-05-2022 | 94 | 106 | 1,189 | 123 |
| 01-06-2022 | 94 | 106 | 1,295 | 92 |
| 01-07-2022 | 92 | 108 | 1,403 | 62 |
| 01-08-2022 | 92 | 108 | 1,511 | 31 |
| 01-09-2022 | 90 | 111 | 1,622 | – |
If Devika decides to redeem her investments on 1 September 2022 then 389 units will not attract an exit load as these were held for more than 365 days from investment date. The remainder 1,325 units will attract an exit load which will be calculated as follows: 1,325 (units) x 90 (NAV) x 1% = Rs 1,192. Devika will receive Rs 118,058 [119,250-1192] on redemption.
Exit load on different types of mutual funds
- There is generally no exit load on liquid funds. Investors can redeem their investments whenever they want and the money will be transferred to their bank account the very next day.
- Generally, exit load is charged on debt funds and equity funds. Different asset management companies charge different amounts of exit load.
Exit load is an important factor to remember while investing in mutual funds. The investor should be well versed with the exit load applicability for the scheme and should make an informed decision while redeeming units.
