Exit load in Mutual Funds
Are you thinking to sell your mutual funds ? If yes, then wait. Before you take that step, know about the exit load in mutual funds.
What is Exit load?
It is a percentage of the amount charged by the AMC at the time of redemption of funds i.e, at the time of selling.
Exit load is different from expense ratio. Expense ratio is a fixed amount charged by the AMC annually whereas exit load is charged only at the time of redemption.
Exit load is charged within a specific period of time if the investment is redeemed.
Why is Exit load in mutual funds applied?
The basic purpose of exit load is to make the investor keep invested and reduce early withdrawal. This helps the investor to let the investment grow. You can earn good returns in the long term if you keep invested. But, if the investor wishes to sell the fund before a specific period, then the mutual fund company charges a certain percentage as exit load.
How is Exit load calculated?
Exit load is calculated on the current value of investment at the time of withdrawal.
Such units which have not completed a specific time frame are multiplied with the current NAV of the fund to calculate the current value of your investment. Then, exit load is calculated as a percentage of current value. This is in the case of lumpsum investment.
Now, in case of SIP, whatever is the date of last units purchased is checked i.e, if the date of last units purchased has completed the specific time period then, exit load will not be applicable otherwise it will.
In mutual fund redemption, the first in first out rule is followed while calculating exit load. So, while redemption, the old units purchased are considered first to calculate the time period for exit load.