{"id":3365,"date":"2021-07-22T18:26:25","date_gmt":"2021-07-22T12:56:25","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=3365"},"modified":"2022-02-10T16:02:54","modified_gmt":"2022-02-10T10:32:54","slug":"exit-load","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/exit-load\/","title":{"rendered":"Exit Load in Mutual Fund \u2013 Definition, Types, Formula, and Calculation in 2022"},"content":{"rendered":"\n<p>Mutual fund schemes are quite liquid. Except for <a href=\"https:\/\/www.tickertape.in\/blog\/information-on-tax-saving-mutual-funds\/?utm_source=blog&amp;utm_medium=article\">ELSS<\/a> funds which have a lock-in period of 3 yrs or closed-ended funds which generally have a maturity of around 3-5 yrs, other schemes allow you to enter or exit from them anytime that you want to. However, under some schemes, there is an exit load applicable when you redeem or switch your units.&nbsp;<\/p>\n\n\n\n<p><strong>This article covers<\/strong>:<\/p>\n\n\n\n<ul><li><a href=\"#exit-load\">What is exit load in a mutual fund?<\/a><\/li><li><a href=\"#features\">Features of exit load in mutual fund<\/a><\/li><li><a href=\"#calculation\">Calculation of exit load in mutual fund<\/a><\/li><li><a href=\"#levied\">Why is exit load levied?<\/a><\/li><\/ul>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/exit-load\/#What-is-exit-load-in-a-mutual-fund\" title=\"What is exit load in a mutual fund?\">What is exit load in a mutual fund?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/exit-load\/#Features-of-exit-load-in-mutual-fund\" title=\"Features of exit load in mutual fund\">Features of exit load in mutual fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/exit-load\/#Calculation-of-exit-load-in-mutual-fund\" title=\"Calculation of exit load in mutual fund\">Calculation of exit load in mutual fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/exit-load\/#Why-is-exit-load-levied\" title=\"Why is exit load levied?\">Why is exit load levied?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"exit-load\"><span class=\"ez-toc-section\" id=\"What-is-exit-load-in-a-mutual-fund\"><\/span><strong>What is exit load in a mutual fund?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The word \u2018load\u2019 means a charge or a fee and the word \u2018exit\u2019 means to leave. Combine these two words and the meaning of exit load becomes quite explicit. The exit load is a charge levied when you exit from the mutual fund scheme, partially or fully. Usually, mutual fund schemes charge an exit load on an early exit, i.e. exit from the fund within a specified time. If you stay invested for the stipulated period, it may be possible to escape the exit load.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"features\"><span class=\"ez-toc-section\" id=\"Features-of-exit-load-in-mutual-fund\"><\/span><strong>Features of <\/strong><strong>exit load in mutual fund<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here are some of the most common aspects of the exit load in a mutual fund scheme:<\/p>\n\n\n\n<ul><li>The load is expressed in the form of a percentage, i.e. maximum 7% of the exit value.<\/li><li>The rate of exit load and the conditions of its application are stated in the Scheme Information Document.<\/li><li>The load is applied on the redemption proceeds, i.e. the amount that you receive when you redeem your mutual fund units.<\/li><li>The Asset Management Company (AMC) deducts the exit load before crediting the redemption proceeds to your account.<\/li><li>Not all mutual fund schemes have an exit load. Some schemes allow free exits.<\/li><li>Short-term <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-debt-funds\/\">debt funds<\/a>, like <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-liquid-funds\/\">liquid funds<\/a> and <a href=\"https:\/\/www.tickertape.in\/blog\/overnight-mutual-funds\/\">overnight funds<\/a>, do not, usually, apply any exit load. However, in a recent directive issued by, <a href=\"https:\/\/www.tickertape.in\/blog\/types-of-mutual-funds-a-quick-overview\/?utm_source=blog&amp;utm_medium=article\">liquid mutual funds<\/a> would charge a staggered exit load if you exit within the first 7 days of investment.<\/li><li>Usually, the exit load is higher in <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds-based-on-market-capitalization\/\">equity mutual funds<\/a> as well as in actively managed mutual fund schemes.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"calculation\"><span class=\"ez-toc-section\" id=\"Calculation-of-exit-load-in-mutual-fund\"><\/span><strong>Calculation of <\/strong><strong>exit load in mutual fund<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As mentioned earlier, the exit load is levied when you exit from a mutual fund scheme. Here\u2019s how it is calculated &#8211;<\/p>\n\n\n\n<p><strong>Amount of exit load<\/strong> <strong>= Redemption proceeds x exit load rate<\/strong><\/p>\n\n\n\n<p>The charge is deducted from the redemption amount and paid to the investor.&nbsp;<\/p>\n\n\n\n<p>For example, say a mutual fund scheme levies an exit load of 2% if you exit within a year of investment. You invested Rs 1 lakh in the scheme which had a NAV of Rs 20 thereby getting 5,000 units. You invested in the scheme in Jun 2021.<\/p>\n\n\n\n<p>Now, in Dec 2021, you decide to exit from the scheme when the NAV is Rs 25. Since you are exiting within a year, the <a href=\"https:\/\/www.tickertape.in\/blog\/information-on-expense-ratio\/?utm_source=blog&amp;utm_medium=article\">exit load <\/a>would apply. It would be calculated as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>NAV as on the date of exit<\/td><td>Rs 25<\/td><\/tr><tr><td>Number of units&nbsp;<\/td><td>5,000<\/td><\/tr><tr><td>Exit load<\/td><td>2%<\/td><\/tr><tr><td>Amount of exit load<\/td><td>25 x 5,000 x 2% = Rs 2500<\/td><\/tr><tr><td>Redemption value receivable<\/td><td>(25 x 5,000) &#8211; 2500 = Rs 1,22,500<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>If, however, you choose the <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-sip\/\">SIP<\/a> mode of investing in <a href=\"https:\/\/www.tickertape.in\/blog\/invest-in-mutual-funds\/?utm_source=blog&amp;utm_medium=article\">mutual fund<\/a> schemes, the duration of each instalment would be considered when calculating the exit load.&nbsp;<\/p>\n\n\n\n<p>For example, say you <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> Rs 10,000 every month in a mutual fund scheme through SIP. An exit load of 2% is applicable if you exit within 12 mth of investment. You start your investment on 1st Jan 2021 when the NAV is Rs 10. You get 1,000 units. Thereafter, on 31st Dec 2021, you redeem 2,000 units when the NAV is Rs 16.<\/p>\n\n\n\n<p>In this case, the first 1,000 units that you bought on 1st Jan would not attract any exit load since they complete 12 mth on 31st Dec 2021. However, the remaining 1,000 units would have been bought in consecutive months. As such, they did not complete 12 mth and would attract an exit load. The amount would be calculated as follows:<\/p>\n\n\n\n<p>Exit load payable = 1000 (redeemed units on which exit load is applicable) x Rs 16 (NAV on redemption) x 2% = Rs 320<\/p>\n\n\n\n<p>So, you would get Rs (32,000 &#8211; 320), i.e. Rs 31,680 on redemption.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"levied\"><span class=\"ez-toc-section\" id=\"Why-is-exit-load-levied\"><\/span><strong>Why is <\/strong><strong>exit load<\/strong><strong> levied?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Exit load is levied by the Asset Management Company to discourage or demotivate investors to exit from the scheme within a short period. It provides security to the fund manager to manage the fund with more room for <a href=\"https:\/\/www.tickertape.in\/blog\/why-is-asset-allocation-one-of-the-most-important-aspects-of-portfolio-construction\/\">asset allocation<\/a> when investors tend to stay invested for a longer duration. The fund manager can invest in securities that have a good long-term profit potential for maximum returns when the threat of early exits does not impede fund management decisions.&nbsp;<\/p>\n\n\n\n<p>In funds where there is no exit load, fund managers know that investors can redeem their investments anytime. As such, they try and maintain sufficient liquidity in the portfolio to meet the redemption pressure. This might impact the return-generating potential of the portfolio. On the contrary, if funds have an exit load, the fund manager knows that the redemption pressure might be limited. As such, they can restrict the proportion of liquidity in the portfolio and use the funds to invest in return-yielding securities. This, thus, has a positive effect on the returns of the scheme as well.&nbsp;<\/p>\n\n\n\n<p>When investing in a scheme, understand what is exit load in a mutual fund to know the charges associated with the scheme. Check out the exit load under different schemes and opt for one that has a low exit load or a rate you are comfortable with. Also, if you have a short-term investment horizon, a scheme without any exit load would be a better alternative.<\/p>\n\n\n\n<p>So, do your research when investing in mutual fund schemes so that you can maximize the returns that you may earn from them.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know what is exit load fee and why AMCs charge it? Get here all the information on exit load funds with meaning, types, formula and how is it calculated.<\/p>\n","protected":false},"author":27,"featured_media":3369,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[8,1750],"tags":[426,78],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/07\/MF-1-3.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3365"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=3365"}],"version-history":[{"count":6,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3365\/revisions"}],"predecessor-version":[{"id":6904,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3365\/revisions\/6904"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/3369"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=3365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=3365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=3365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}