Mutual funds are a pool of investments drawn from various investors having the same investment objectives. However, managing these funds alone is quite difficult for investors; here, the Asset Management Companies (AMC) come into the scene.
These AMCs manage the funds by the investors and ensure the investments go towards growth. These AMCs charge a small amount of fees whenever an investor exits or redeems the units of a fund. This fee is called the Exit load.
What is an Exit Load in Mutual Funds ? Why is it Levied?
An exit load is the fee AMCs (Asset management companies) charge the investor at the time of exiting or retrieving the units of the fund. The primary reason for levying exit load is to discourage investors from backing out and pulling out their investments before the lock-in period is over.
Additionally, the exit load fee may also reduce the withdrawal numbers from the mutual fund schemes. However, not all funds levy an exit charge on investors. Hence, you need to keep in mind the ‘exit load aspect’ while choosing a plan to invest in.
Exit load meaning in mutual funds, can be understood as a percentage of the Net Asset Value (NAV) of the mutual fund an investor possesses. The Net Asset value is the net value of an entity and is calculated as the entity’s assets minus the value of its liabilities.
Usually, the AMCs deduct the exit load from the total NAV and the remaining amount gets credited to the investor’s account.
Let's understand with an example
For instance, if the exit load levied on a one-year scheme is 2% and is redeemed within 4 months, which would be much before the agreed period of investment.
So, here an exit load comes into the scene. If the NAV of the fund is Rs.40 during the time of redemption, the exit fee charged would be 2% of Rs. 40, which is equal to 0.8. After deducting this amount from the NAV, which is Rs. 39.20 gets credited to the investor.
Moreover, if the investor completes the agreed tenure of the funds, then he/she won’t have to pay the exit load at the time of redemption.
How to Calculate Exit Load in Mutual Funds
The rates of exit load depend on the type of mutual funds; different mutual funds charge different exit loads.
Suppose an investor invested Rs. 30,000 in a mutual fund scheme in January 2022. The plan has an exit load of 1% if redeemed before 1 year. The NAV is Rs. 100, which means that the investor has 300 units.
Now, if the investor wants to redeem the units after 4 months, i.e. in May 2022. In this case, the investor will be paying an exit load as per the calculation:
| Amount invested in January 2017 | 30,000 |
| Net Asset value at the time of investment | 100 |
| Units Bought | 30000/100=300 |
| NAV at the time of redemption | 90 |
| Exit Load | 1% of (90*300)= 270 |
| Final Redemption Amount | 27000-270=26730 |
Exit Loads on Various Types of Mutual Funds
Different mutual funds charge different rates of exit load. However, not all mutual funds levy exit load on investors. It is advisable to check the exit load of the mutual fund schemes you are interested to invest in.
Let’s check out some rates on mutual funds
- There is usually no entry or exit load on liquid funds. This means that the investors can redeem the investments whenever they want, and the money will be credited to their bank accounts the very next day.
- Debt funds may or may not have an exit load. However, one can ignore the expense by adjusting the investment tenure with the time period for which the fund charges an exit load.
- Same with equity funds. It varies but is usually around 1% if redeemed within the first 12 months. However, it differs from AMC to AMC.
Exit Load on SIP
Most investors are usually perplexed to understand the ‘Exit Load’ concept when investing through SIP.
Exit load on SIP might be a tad bit different. Every investment in SIP is treated as a fresh purchase, so exit load may be charged accordingly depending on your SIP instalment amount and your redemption amount.
Exit Fee is a vital factor for an investor to be aware of while investing. You should be meticulous before proceeding with aMutual Fund schemeas it helps you to estimate the returns once all the other expenses are settled.
No investor would ever want to get a fine in the form of an exit load unknowingly. Exit Load can take a toll on you and your planned investments; it can be avoided if you plan your sale of units judiciously.
Related Mutual Fund Pages
SIP | Lumpsum |
AUM | Systematic Transfer Plan |
Exit Load | Mutual Fund Units |
Expense Ratio | Childrens Fund |
NAV | Interval Funds |
Systematic Withdrawal Plan (SWP) | Emerging Market Funds |
Hedge Funds | Benchmark |
List of AMC in India
Asset Management Company |
Axis Mutual Fund | PGIM India Mutual Fund | BOI Axa Mutual Fund |
Kotak Mutual Fund | Sundaram Mutual Fund | Union Mutual Fund |
Nippon Mutual Fund | Invesco Mutual Fund | Taurus Mutual Fund |
HDFC Mutual Fund | LIC Mutual Fund | Edelweiss Mutual Fund |
SBI Mutual Fund | JM Financial Mutual Fund | Navi Mutual Fund |
ICICI Prudential Mutual Fund | Baroda Mutual Fund | Mahindra Mutual Fund |
Aditya Birla Sunlife Mutual Fund | Canara Robeco Mutual Fund | Quantum Mutual Fund |
UTI Mutual Fund | HSBC Mutual Fund | PPFAS Mutual Fund |
Franklin Templeton Mutual Fund | IDBI Mutual Fund | IIFL Mutual Fund |
IDFC Mutual Fund | Indiabulls Mutual Fund | Quant Mutual Fund |
DSP Mutual Fund | Motilal Oswal Mutual Fund | Shriram Mutual Fund |
TATA Mutual Fund | BNP Paribas Mutual Fund | Sahara Mutual Fund |
L and T Mutual Fund | Mirae Asset Mutual Fund | ITI Mutual Fund |
FAQs
Suppose you redeem 500 units of a scheme 4 months after your date of purchase. Let us assume that the NAV is Rs 100. The exit load will be = 1% X 500 (number of units) X 100 (NAV) = Rs 500. This amount will be deducted from the redemption proceeds which gets credited to your bank account.
What is the best exit load for a mutual fund? ›
The best exit load for a mutual fund is one that is low or non-existent. The exit load is a fee charged by mutual funds when an investor sells or redeems their units before a certain period of time has elapsed. It is usually a percentage of the Net Asset Value (NAV) of the mutual fund units held by investors.
How to exit a mutual fund? ›
You may cancel your mutual fund SIPs offline by notifying your bank and the respective AMCs. You can also have your mutual fund agent do it for you. Request a SIP cancellation form from your asset management firm or through online Mutual Fund Registrar and Transfer websites such as CAMS and KFin Technologies Limited.
How to avoid exit load in mutual fund? ›
How can I avoid paying exit loads on mutual funds? To avoid paying exit loads on mutual funds, investors should adhere to the minimum holding period specified by the mutual fund scheme. If you plan to redeem your investment before the completion of the specified period, you will likely be subject to the exit load.
How do you calculate exit value? ›
To calculate your exit value using a multiple of revenue, you simply multiply your annual revenue by a certain number. The multiple can vary depending on the industry, but a common multiple is 4x. This means that if your company has annual revenue of $1 million, your exit value would be $4 million.
How do you calculate total money exit? ›
Exit multiple is a very simple calculation. It is the total cash out divided by the total cash in.
What is the 3 5 10 rule for mutual funds? ›
Specifically, a fund is prohibited from: acquiring more than 3% of a registered investment company's shares (the “3% Limit”); investing more than 5% of its assets in a single registered investment company (the “5% Limit”); or. investing more than 10% of its assets in registered investment companies (the “10% Limit”).
What is the 80% rule for mutual funds? ›
The Names Rule requires that if a Fund's name suggests that the Fund invests in a particular type of investment or investments, or in investments in a particular industry, group of industries, countries, or regions, then such Fund must adopt a policy to invest at least 80 percent of the value of its assets2 in such ...
What is the safest investment with the highest return? ›
These seven low-risk but potentially high-return investment options can get the job done:
- Money market funds.
- Dividend stocks.
- Bank certificates of deposit.
- Annuities.
- Bond funds.
- High-yield savings accounts.
- 60/40 mix of stocks and bonds.
The rule of 8-4-3 when it comes to compounding indicates a style of investment that accelerates growth with time. Initially, a corpus doubles within 8 years through an average annual return of 12% subsequently another doubling happens for the same period after another 4 years following its initial setting up.
When it comes to equity, it is very important that, especially when you are thinking about long-term goals, you want to exit as soon as you have 2-3 years left approaching your goal and there are just 2-3 years to get there. That is number one.
Can you pull out of a mutual fund at any time? ›
Can One Withdraw Mutual Funds Anytime? Investments in open-end schemes are redeemable at any time. However, investments in the Equity Linked Savings Scheme (ELSS) carry some restrictions, as they come with a three-year lock-in period from the investment date.
What is the formula for exit load? ›
The client decides to redeem 1000 units of the mutual fund when the NAV is ₹60. The exit load of 1% will be deducted from the latest NAV, i.e. ₹60. The calculation will be as follows: (1% of ₹60) * 1000 units = ₹600. The redeemable amount would be ₹59,400 (₹60,000 - ₹600).
Which funds do not have exit load? ›
There is usually no entry or exit load on liquid funds. This means that the investors can redeem the investments whenever they want, and the money will be credited to their bank accounts the very next day. Debt funds may or may not have an exit load.
How to redeem a mutual fund without exit load? ›
This mutual fund scheme has an exit load of 1% if the investor redeems before a tenure of 1 year. In scenario 1, the investor receives the full redemption proceeds into their account as no exit load is applied after a period of 1 year.
How do you calculate front end load in mutual funds? ›
If an investor buys mutual fund units worth INR 100,000 with a 5% front-end load, they effectively invest INR 95,000, with INR 5,000 covering costs like broker commissions. The front-end load fee calculation is straightforward: Investment Amount x Front End Load Percentage, leading to a reduced investment amount.
How do I calculate the NAV? ›
NAV=(Assets – Liabilities) / Total Shares
Net Asset Value is calculated as Net Asset of the Scheme / Outstanding Units. In this case, the net asset of the schemes may be estimated as the market value of the investments, receivables, other accrued income, and other assets.
What is the exit fee of a fund? ›
An exit fee is a fee charged to investors when they redeem shares from a fund. Exit fees are most common in open-end mutual funds. A load is a sales charge commission charged to an investor when buying or redeeming shares in a mutual fund.
What is the load percentage for a mutual fund? ›
Front-end loads are assessed as a percentage of the total investment or premium paid into a mutual fund, annuity, or life insurance contract. The percentage paid for the front-end load varies among investment companies but typically falls within a range of 3.75% to 5.75%.
