What is Exit load?

The exit load is a load mutual fund companies charge when investors redeem or sell their units before a specified period. A mutual fund is a collection of investments from various investors with similar objectives. Managing these funds alone can be challenging for investors; this is where Asset Management Companies (AMCs) come into play.

When an investor exits or redeems a units, these AMCs charge a small fee. In this article, let?s get a better understanding of what exit load is in mutual funds.

A mutual fund company may charge an exit load when investors redeem or sell their units before a specified period. Mutual funds impose fees on early redemptions to protect long-term investors from the potential adverse effects of short-term trading activities.

It is calculated as a percentage of the value of the units being redeemed, and it is deducted from the redemption proceeds. For example, if an investor redeems Rs 10,000 worth of units and an exit load of 1% applies, the fund will deduct Rs.100 as the exit load, and the investor will receive Rs 9,900.

However, it's important to note that not all Scheme charge exit loads. Also, the structure of exit loads may differ from Scheme to Scheme. Scheme information document (SID) contains information about any exit loads that may apply, including their duration.

How to Calculate Exit Load in Mutual Funds?

Using the following example, let's learn how exit loads are calculated in mutual funds. Assume an investor invested Rs 1,00,000 in an equity mutual fund scheme at an NAV of Rs 100 in Oct'24. If the exit load is 1% for a 12-month mandatory holding period, here is how redemption scenarios would look:

If the same money had been redeemed after 12 months, say in Nov'24, there would have been no exit load, and the current value of the investment would have been redeemed. The exit load is based on the current value of the investment, not on the initial investment.

Exit Load on Various Types of Mutual Funds

The exit load charged by mutual funds varies. You should check the exit load if you are interested in investing in a mutual fund scheme.
Here are some exit loads on mutual funds
1. Overnight Fund do not have exit loads. The investors can redeem their investments anytime, and the investors bank accounts will be credited with the redemption proceeds within the timeline.
2. There may or may not be an exit load on debt funds.
3. There is usually an exit load for equity funds since equity funds are generally considered long-term investments. When redeemed within the first 12 months, it may vary between 1% and 2%.

Exit Load on SIP

In most cases, investors need clarification to understand the concept of exit load when investing through a systematic investment plan (SIP). The SIP exit load may be different. The exit load may differ depending on your SIP instalment and redemption amount since every SIP investment is treated as a fresh purchase.

Conclusion

Exit loads are fees that will be charged for redemptions of mutual funds. A mutual fund scheme's 'specified' period is defined in its scheme information document (SID) and must be considered when investing. Also, before investing in any mutual fund scheme, investors must thoroughly read the scheme information document to align it with their investment goals.

FAQs on Exit Load

What are the entry load and exit load in mutual funds?

No entry load is charged for Mutual Fund Schemes. When investors sell mutual fund units, they may be charged exit loads. These fees are used to cover the fund's expenses, and they can vary depending on the type and the term of the investment.

Is exit load required if the investor opts for SWP (Systematic Withdrawal Plan)?
Yes. Investors will be required to pay the exit load if they withdraw before the exit load period ends.

How do you avoid exit load in mutual funds?
Mutual fund investors should adhere to the minimum holding period specified by the mutual fund scheme to avoid paying exit loads. The exit load may apply if you plan to redeem your investment before the specified period expires.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates, shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as a research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable. While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the scheme

Past performance may or may not be sustained in future.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully