What is Exit Load in Mutual fund

An exit load is a fee that a mutual fund company charges clients who cash out or sell their units before a specific date. exit load is meant to stop short-term trading and compensate for any costs that might come up when units are redeemed early. By charging a fee for early redemptions, mutual funds try to protect long-term clients from the harmful effects that short-term trading might have.

exit load is a portion of the value of the units being redeemed, and it is deducted from the redemption money. In this case, if an investor redeems 10,000 units and there is an exit load of 1%, the fund will deduct 100 rupees as the exit load and give the investor 9,900 rupees as payment.

It is important to remember that not all mutual funds have exit loads, and how they work can differ from one fund to the next. The mutual fund's offer document or scheme information document (SID) has information about any exit loads that apply, such as how much they cost and how long they last.t.

How to Figure Out Mutual Fund Exit Load

First, you need to know the percentage of the exit load that your mutual fund plan charges to calculate the exit load. The mutual fund's offer or scheme information document (SID) has this information. Most mutual fund plans charge exit loads to investors who leave the fund within a year. Let's see what I mean.

Example: Let's say you invest in a scheme in which, within 365 days of the buy date, redemptions are subject to a 1% exit load. You can cash in 1,000 plan units six months after you bought it. To find the exit load, multiply the percentage paid by the number of units times the NAV. In this case, the NAV is 100. Exit load = 1% of 1000 units times 100 NAV, which equals Rs 1000. That amount will be taken from the money you get when you redeem the ticket, which will then be sent to your bank account.  

One thousand units – 100 NAV – 1000 exit loads = Rs 99,000.

In this case, you will get it when you redeem Rs 99,000.

Regarding SIPs, the exit load is calculated for each installment individually.

Remember that the exit load requirements may be different for each mutual fund and plan.

Different types of mutual funds have different exit loads.

The rules for exit loads can differ for each mutual fund type. Here is a general look at the exit loads that come with different kinds of mutual funds.

Debt Funds

Debt funds buy bonds and government securities, which have a set income. In general, debt funds' exit loads are less severe than equity funds. For instance, if you sell your shares in a debt fund within 90 days, you may have to pay a 0.5% exit load.

Equity Funds

Equity funds usually have longer financial horizons and a higher risk-reward profile. Because of this, they usually have a higher short-term exit load to keep people from leaving early. Still, many stock funds don't charge an exit load, meaning investors can cash out their units without paying a fee.

If you cash out your investment early, there is an exit load on hybrid funds, like arbitrage funds. Some buyers think that arbitrage funds are only good for very short periods, like overnight funds, and that there is no exit load when you sell. However, if you cash out within 15 to 30 days, most arbitrage funds will charge you an exit load. Therefore, it's best to invest in arbitrage funds for at least one month.

In conclusion

For buyers, it's essential to know about exit fees. It will help you figure out how much money you'll make after all the costs are paid. Remember that the exit load structure can be different from one mutual fund plan to the next. The mutual fund's offer or plan information document will usually have information about exit loads, such as how long they last and their percentage. Before you invest in any mutual fund, you should carefully read these papers and understand the exit load fees that apply. Consider speaking with Moneyedge, acknowledged as a leading financial advisor in India, for competent guidance on balancing the challenges of investing in mutual funds.


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