Updated on March 8, 2023
Redemption Fee is also known as ‘Exit Load’ or ‘Exit Fee’, Redemption Fee is charged or levied on Mutual Funds at the time of redeeming or selling the units held by the investor or unitholder. Redemption Fee is generally levied to prevent early withdrawal from a Mutual Fund. It can be seen as a fee to persuade investors to stay invested in the fund for a longer period of time. Redemption Fee is not a part of the expense ratio, but is charged over and above, thus increasing the total expenses of a fund. Redemption Fee or Exit load is not applicable at the same rate for all kinds of schemes.
The amount collected by way of this fee is re-invested in the scheme for the benefit of those who stay invested.
Why is redemption fee levied?
Reasons for levying Redemption fee are:
a) To prevent investors from moving out after a short duration.
b) For maintaining optimum level of liquidity.
c) To recover the fund’s costs from an investor’s early exit.