An exit load refers to the fee that the Asset Management Companies (AMCs) charge investors at the time of exiting or redeeming their fund units. Exit loads are generally applicable for the first couple of years or months depending on the fund. Exit loads are meant to penalize investors for exiting investments before their recommended investment horizon.
Exit loads are more popular in Equity funds as equity funds are preferred for longer horizon investments. These also vary from fund to fund.
Exit loads are applicable on the current value of the investment and not the invested value. For eg, The large cap fund managed by your friend’s AMC has an exit load of 1% for the first 12 months of investment. You had invested Rs. 10,000, 2 months ago which has now grown to Rs.11,500 and now you want to exit the fund. You will have to pay 1%*11,500 = 115 as an exit load to the AMC. Exit loads are deducted automatically by the AMC so you will receive 11,500 – 115 = Rs.11,385 in your bank account.