Did you know what is exit load? What is the exit load in mutual fund? Now of departure, the exit load is applied. The fund’s entire redemption value is used to compute this fee. Let us have a look at an example of this —

There are mutual fund schemes with NAVs of INR 50, and you decide to invest in one of them. You gain 200 fund manager units for an investment of INR 10,000. Previously, there was a 1% exit fee if you redeemed within a year after investing. Let’s check out the exit load in mutual fund meaning.

When the NAV reaches INR 55 after five months, you may redeem 100 units. Redeeming within a year after investing entails paying an exit load on the redeemed amount. How well the exit load would be determined is shown in the following figure –

Number of units being redeemed	100
NAV on redemption	INR 55
Exit load	1% of NAV = 1% of 55 = INR 0.55
Total redemption value that you get	(55 – 0.55) * 100 = INR 5445

Exit Load In Mutual Funds

What is exit load meaning? This fee is imposed on investors who want to withdraw from their mutual funds within a certain period, as stated inside the Scheme Information Documents. In certain cases, departure fees are not imposed at all. A mutual fund may impose an exit cost to deter investors from selling their shares early.

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This is done for the benefit of all investors, particularly those who stay involved in the plan. Various mutual fund companies charge a wide range of exit loads. Short-term investors should know the scheme’s exit load structure to make well-informed investment choices.

How To Calculate Exit Load In Mutual Fund

So how to calculate exit load in mutual fund? Mutual funds in India may be purchased in either a single amount or a regular investment plan (SIP). Investors may choose to invest in a mutual fund in a lump sum, or they can choose to invest a predetermined amount of money at predetermined intervals, such as once a month, once every week, or once every quarter. Read the details of how exit load is calculated.

In Oct’19, you invested Rs 1,00,000 at a NAV of Rs 100 in an equity fund plan. Assuming a hypothetical exit load of 1% for a 12-month obligatory holding period.

There would’ve been no exit load if the same money had been redeemed in Nov’20, and the current value of the investment would have been reclaimed. This shows that the departure fee is based on the current investment value, not the amount initially invested.

When it comes to investing using a systematic approach, or SIP, in January of this year, you began a monthly SIP commitment of Rs 10,000 in an equity mutual fund (exit load of 1% before 12 months). In a hypothetical growth scenario, your money has risen from Rs 60,000 to Rs 70,969.2. However, due to early withdrawal, you would only get Rs 70,259.508 after subtracting the exit load, i.e., Rs 70,259.508.

Now imagine the identical situation, but the sole variation is that the redemption is made on January 20 instead of July 2019.

Exit Load On Various Types Of Mutual Funds

What is exit load in mutual fund? Mutual funds charge exit load on various funds, including equity, hybrid, and debt. Debt funds, such as overnight and ultra-short duration funds, do not levy mutual fund exit fees. Aside from overnight and ultra-short duration funds, several schemes in certain debt fund categories like Banking and PSU funds, Gilt funds, etc., do not levy an exit cost. Accrual-based debt funds often charge higher exit charges since they prefer investors to stay invested until the assets expire to decrease interest rate risk.

Due to the long-term investing nature of exit load, mutual funds often charge greater exit loads for equity funds than debt funds. Exit fees are common in equity funds that are actively managed. On the other hand, many index funds do not incur exit fees. Exit loads may be avoided by investing in Exchange Traded Funds (ETFs), which are equity funds that do not impose an exit fee. Enrolling in a zero exit load fund is unnecessary if you don’t wish to invest for lengthy periods of time in equities funds.

Early redemptions are subject to exit loads in hybrid funds, which include arbitrage funds. Many investors mistakenly believe that arbitrage funds are only intended for short-term investments, such as overnight funds, and that no exit fee is associated with these types of investments. Exit fees are common in arbitrage funds, which typically levy a fee for withdrawals within 15 to 30 days after purchase. For arbitrage funds, you should thus have a one-month or longer investment horizon.

Load Exit In The Event Of Sips

To contribute economically and consistently, SIPs enable you to spend in installments. Exit load is an idea that each SIP investment must be examined independently.

SIP investments are included against the exit load if they are redeemed within a year of making them; for example, the fund manager charges an exit fee if you do so. The initial payment will have been paid for 12 months and will be free of any exit charges by the 13th month. It would be possible to redeem the second payment for free on the 14th month, the third installment for free on the 15th month, and so on. Calculate each payment period separately to determine when the SIP is free of exit burden.

Conclusion

An investor at Nuuu should be aware of the exit charge when deciding to invest. A fine in the form of an exit load is the last thing any investor wants to receive as a surprise. With money, you don’t have to pay an exit fee when you buy and sell mutual funds.