What is Exit Load in a Mutual Fund?
An exit load is a fee or charge levied by mutual funds when investors redeem or sell their units before a specified period. This fee is typically imposed to discourage short-term investments and to cover the administrative costs associated with early withdrawals.
The exit load is generally calculated as a percentage of the Net Asset Value (NAV) at the time of redemption. This charge varies across different mutual fund schemes.
Consider an investor who invested â¹40,000 in a mutual fund scheme in January 2021, purchasing units at a NAV of â¹100, resulting in 400 units. The mutual fund charges an exit load of 1% if the units are redeemed before one year. If the investor decides to redeem the units after four months when the NAV is â¹90, the exit load calculation would be as follows:
Initial Investment: â¹40,000
Units Purchased: â¹40,000 / â¹100 = 400 units
NAV at Redemption: â¹90
Exit Load: 1% of (400 units x â¹90) = â¹360
Gross Redemption Value: 400 units x â¹90 = â¹36,000
Redemption Value: â¹36,000 - â¹360 = â¹35,640
Thus, with an initial investment of â¹40,000, the investor would receive â¹35,640 after deducting the exit load of â¹360, assuming they redeemed the units after four months
The exit load is generally calculated as a percentage of the Net Asset Value (NAV) at the time of redemption. This charge varies across different mutual fund schemes.
Types of Exit Load in a Mutual Fund
How to Calculate Exit Load in a Mutual Fund
Calculating the exit load in a mutual fund is crucial for understanding the net redemption value of the investment. The calculation involves determining the percentage of the NAV that will be deducted as an exit load.Consider an investor who invested â¹40,000 in a mutual fund scheme in January 2021, purchasing units at a NAV of â¹100, resulting in 400 units. The mutual fund charges an exit load of 1% if the units are redeemed before one year. If the investor decides to redeem the units after four months when the NAV is â¹90, the exit load calculation would be as follows:
Initial Investment: â¹40,000
Units Purchased: â¹40,000 / â¹100 = 400 units
NAV at Redemption: â¹90
Exit Load: 1% of (400 units x â¹90) = â¹360
Gross Redemption Value: 400 units x â¹90 = â¹36,000
Redemption Value: â¹36,000 - â¹360 = â¹35,640
Thus, with an initial investment of â¹40,000, the investor would receive â¹35,640 after deducting the exit load of â¹360, assuming they redeemed the units after four months
