What Do You Mean by Zero Exit Load in Mutual Funds

Asset Management Companies (AMCs) charge a fee from the investors against the redemption of their fund units at the time of their exit. This fee is known as exit load. It may be charged as a penalty if the exit is made during the lock-in period. It may be charged as a commission even after the maturity of the fund scheme. Or it may not be charged at all.Mutual Funds

Calculating exit load in mutual funds

Let us assume that you have purchased one of any mutual funds online, which is a one-year scheme. The exit load will be 1% of Rs 10,000, i.e., Rs 100. If the scheme has an exit load of 1%, the same will be charged from the Net Asset Value (NAV) of the maturity amount at the time of withdrawal. If the withdrawal is made in four months, the exit load will be attracted. If the NAV of the unit is Rs 50 and you hold 200 units, your maturity amount is Rs 10,000. So, you will receive Rs 9,900 on withdrawal.

Exit load in different mutual funds

Not all mutual funds charge an exit load. Mutual funds like overnight and other ultra-short duration mutual funds don’t charge any exit load. These are types of debt funds. Other debt funds like gilt funds, funds with banking, and PSU specializations also generally don’t charge exit loads. Accrual-based debt mutual funds, however, charge a higher exit load because the investors are discouraged from exiting such schemes mid-way. Equity mutual funds also charge exit loads as these schemes, too, are meant for long-term investment. Besides, these are also actively managed funds. Passive mutual funds, like exchange-traded funds, don’t charge exit loads. Even hybrid mutual funds can charge an exit load on early redemption.

Other things to know.

  • If you have opted for an SWP mutual funds scheme, make sure your withdrawals start after the end of the exit load period. Otherwise, your initial systematic withdrawals will face an exit load penalty.
  • You don’t have to pay tax on the exit load portion. Your capital gain is calculated net of the exit load deducted by your AMC.
  • Exit load will be charged even if you redeem your SIP or regular mutual fund units at a loss. Redeeming at a loss will further increase the loss if the exit load period is active.
  • Exit load, if applicable, will be charged even when you switch schemes within the same AMC. A switch is treated as redemption for exit load purposes, and the new scheme is seen as a reinvestment.

Conclusion

Find more about the charges you may face in your mutual funds online on verified and top-rated investment apps, such as Tata Capital Money App.

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