Updated on March 20, 2023
An exit load is a fee charged by AMCs or Mutual Fund houses to investors at the time of exiting or redeeming mutual fund units. This fee is also known as exit penalty or commission to fund houses and is applicable if the investor exits the mutual fund investment during the lock-in period.
How is Exit Load calculated for Mutual Funds
Suppose a mutual fund scheme has 1% exit load for redemptions within 1 year of purchase. If an investor redeems 500 units (assuming the NAV is Rs. 100) of the scheme 4 months after purchasing them, how will the exit load be applied? The exit load will be = 1% X 500 (number of units) X 100 (NAV) = Rs. 500. The exit load will be reduced from the redemption proceeds that the investor gets in his /her bank account. Thus, the final redemption amount will be= (500 units X Rs. 100 NAV – Rs 500 exit load = Rs 49,500.
Does Exit Load Differ Across Mutual Funds?
Mutual fund houses charge exit load on various schemes, including debt, equity, and hybrid schemes. However, Some debt funds, including overnight fund and ultra-short duration funds may not charge exit load. Also, some debt funds like Banking and PSU funds, Gilt funds etc. do not apply any exit load. Mutual funds may charge exit loads depending on how long they want the investors to remain invested in the scheme.
Equity mutual fund usually attract higher exit loads since these are ideal for long term investment horizons. Among equity funds, most actively managed equity funds charge higher exit loads. Passively managed Index funds generally do not charge or charge very minimal exit loads. Same goes for Exchange Traded Funds or ETFs.