Exit Load in Mutual Funds

Exit load is a fee charged when an investor redeems his investments from a Mutual Fund scheme. In other words, it is the fee that a mutual fund house charged the investor at the time of exiting or redeeming a scheme.

Sometimes, exit load also refers to the commission to the mutual fund house or pre-exit penalty. That’s if an investor exits the scheme before the lock-in period is over. Not all funds charge an exit fee. Therefore, while choosing a scheme or a plan, one needs to look at the exit load too along with its expense ratio.

An exit load is charged only for a specified duration only, after which there is no exit load.

Purpose of Exit Load

Often it is said that an investor fails to honor the specified time period for which they had agreed to invest in a fund. So, an exit fee can be a discouragement to an investor from pulling out their mutual fund investments prematurely. It is believed that the exit load charges may reduce the number of withdrawals from the MF schemes.

How to Calculate Exit Load in Mutual Funds?

An as illustration purpose, let's consider that an investor has invested INR 10,000 in a MF scheme in January 2017. The NAV of the scheme is INR 100 and the exit fee for redeeming before one year is 1 percent. In May 2017, the investor would opt to invest INR 5000 at NAV of 100 in the same fund.

We will calculate the exit load in two cases, one when the investor redeems the fund in December 2017 with the NAV is INR 110, and; If the Redemption happens in March 2018, when the net asset value is INR 115.

For Redemption in December 2017, the exit load would be charged for both investments in January 2017 and May 2017 as per the prevailing NAV of INR 110 in December.

In case of redemption in the month of March 2018, the first investment of January 2017 completes one year term. Therefore, there is no exit fee for its redemption.

But, the second investment of March 2017 will attract exit charge at 1 percent as mentioned above.