What is an Exit Load in Mutual Funds?

Exit load is a fee or charge that a mutual fund imposes on investors when they redeem (sell) their units of the fund before a specified period. It is designed to discourage early withdrawals and to compensate the fund for the costs associated with redeeming the investment.

Exit load depends on type of mutual fund and varies from fund to fund. To explore the different types of mutual funds, feel free to check out our detailed blog Types of Mutual Funds in India: From Equities to Debt.

Earlier, schemes had the flexibility to differentiate between different classes of investors within the same scheme, by charging them different levels of load. Further, all the money collected as loads were available for the AMC to bear various selling expenses. There were liberal limits on how much could be charged as loads.

SEBI has banned entry loads. So, the Sale Price needs to be the same as NAV. While charging exit loads, no distinction will be made among unitholders on the basis of the amount of subscription. While complying with the same, any imposition or enhancement in the load shall be applicable only on prospective investments. The parity among unitholders on exit load shall be made applicable at portfolio level.

• No exit load will be charged on bonus units and units allotted on reinvestment of dividend.
• Exit loads have to be credited back to the scheme immediately i.e., they are not available for the AMC to bear selling expenses.