When it comes to money management, it is always vital for the investors to know the expenses associated with their investments, as such costs and charges directly eat into their returns. Some of the expenses may be unavoidable for the investors, like fund management expenses, etc., for it adds value to the mutual fund scheme. However, investors may avoid one such charge if they diligently plan for their investment redemption, i.e., exit load.
What is Exit Load?
Exit load is a charge levied at the time of mutual fund redemption if the investor redeems before the expiry of the specified period of investment in the scheme. Any exit load charged from the exiting investors is credited to the mutual fund scheme itself and does not form part of the profits of the mutual fund house.
It is primarily intended to compensate the remaining investors for the impact cost arising on the early liquidation of investments due to redemption outflows. The investors must note that the exit load is calculated as a percentage of fund NAV and not on the actual fund returns. As such, the exit load directly eats into the overall returns for the investors at the time of redemption This discourages the investors from early redemption of their investments.
Mutual funds cannot charge any exit load beyond the levels as specified in the offer document. Further, any change in the exit load provisions can only be applied prospectively and not on the existing investments of the investors.
Another essential point to note for the investors is that the levy of exit load on a mutual fund scheme is different from the lock-in period. While the investors can liquidate their mutual fund investments when the exit load is levied, it is impossible to redeem any mutual fund investments during the lock-in period.
