Heard that there are exit load associated with mutual funds. What does it mean?Asked
When an investor sells or liquidates the mutual funds, the fund house charge a fees on redemption of the funds which is called exit load. However, some funds don’t charge any fees on redemption if withdrawal after a certain period of time.
For investors, a fund which charges no exit load is better than funds which charges fees as it provides flexibility and liquidity to investors. Exit loads are imposed on mutual funds to discourage withdrawals. Fund manager wants investors to hold the fund for long time as time horizon provides proper analysis time and make them invest in growing companies.
Some funds levy flat exit loads whereas some funds charge differential exit loads. If investor is withdrawing money in the early phase, higher fees is charged in comparison to withdrawing funds after a long period of time. On an average, an actively managed equity fund charges 1 % exit load on redemption of funds and on the other hand, index funds also charges an entry load of 1 %. However, most equity funds do not charge any exit load if redemption takes place after 1 year.
Exit loads are also applicable on Systematic Investment Plan. If the lock-in period for the SIP installment is 12 months, the exit load will be applicable within the same time frame. Every fund defines its own exit load and that is why investors are expected to read the terms and conditions of the fund carefully. In most cases of exit loads, it is generally in the range of 0.25 to 3 %. Mutual fund typically charges exit load on short term funds for a short duration of 60 to 120 days. Exit load might not be charged for ultra short term funds.
Exit load is something that Mutual funds charge when you sell you investments.
Exit load change based on categories and schemes.
Typically, equity funds have exit load of 1% if you sell (redeem) your investments in less than a year. But this is not hard and fast rule. For example, consider Quantum Long Term Equity Fund has complicated exit load:
If redeemed bet. 0 Day to 180 Day; Exit Load is 4%;
If redeemed bet. 180 Day to 365 Day; Exit Load is 3%;
If redeemed bet. 365 Day to 545 Day; Exit Load is 2%;
If redeemed bet. 545 Day to 730 Day; Exit Load is 1%;
On the other hand Motilal Oswal MOSt Focused Multicap 35 Fund has no exit load.
Debt funds typically have lower exit loads.
You can check out this article to know more about exit loads.