What is exit load and how is it calculated?

# What is exit load and how is it calculated?

Updated: 14 Dec 2022, 08:05 AM IST
TL;DR.

## When an investor redeems the mutual fund units, they — at times — have to pay a small fee levied by the fund house. We elaborate the process to calculate this fee, also known as exit load

When an investor makes redemption within a stipulated period of investment, the fund house levies a fee

When you redeem your mutual fund units not too long after you bought them, you might have to pay a fee to the asset management company (AMC) at the time of sale. The net cash inflow, therefore, will be arrived at after deducting this fee, also known as exit load, from the sale proceeds for exiting the scheme ‘prematurely’.

Exit load is a form of penalty charged by mutual fund house when an investor makes a partial or full redemption within a stipulated period of investment. The time period for which it applies varies from scheme to scheme.

It is vital to note that the time period is calculated from the date of investment – be it lumpsum or SIP. Also, the exit load which is applicable at the time of investment is levied.

## How is it calculated?

Let us suppose, someone invested 50,000 lumpsum on October 1, 2021 and the fund house’s exit load was one percent for the next one year. The net asset value (NAV) of the fund at the time of purchase was 20 and hence, investor was allotted 2,500 units.

In less than one year i.e., on August 1, he decides to redeem half of the units. If the NAV is 25 at the time of redemption, he should ideally be entitled to receive 1250 X 25 = 31,250.

But since he is selling his units before the expiry of one year, the transaction will attract exit load at the rate of one percent.

Exit load therefore will be 1 percent of 1250 X 25 = 312.50.

So, the amount that he would receive after redemption would be 31,250 - 312.50 = 30,937.5.

However, it is important to note that in case of SIP, each SIP would be considered a separate investment and exit load will be calculated accordingly.

For example, someone invests 1,00,000 via SIPs on different dates:

 Amount Fund units Date of investment ₹25,000 500 April 1, 2021 ₹25,000 500 May 1, 2021 ₹25,000 500 June 1, 2021 ₹25,000 500 July 1, 2021

If the investor wants to sell all units on May 15 i.e., more than one year of buying 1,000 (500+500) units. It means only half of the units will be subject to exit load.

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First Published: 14 Dec 2022, 08:05 AM IST