What is Exit Load in Mutual Fund?

The exit load in mutual funds represents an additional fee that a fund house imposes if you exit the fund scheme before a predetermined period. On average, an exit load of 1% applies if you redeem funds within 1 year. However, such an amount and tenure might differ between funds and their policies. To learn in detail about exit load, read through this blog.

What Does an Exit Load on Mutual Fund Schemes Mean?

Although multiple fund houses might not impose an exit load, you must understand the concept of it for those funds that impose this charge:

• Suppose you invest INR 1,00,000 in a mutual fund with an exit load of 1% if withdrawn under 1 year.
• Now, suppose your investment grows to INR 1,12,000 and you decide to redeem it before the window.
• Therefore, as per the fund’s policy, you must pay a 1% exit load, i.e. INR 1120.
• The Securities and Exchange Board of India (SEBI) does not declare a uniform amount for this load. However, the AMCs must reasonably and justifiably implement this charge to maintain investor discipline and lower speculative trades.

Why Fund Houses Impose an Exit Load in Mutual Funds?

As of 2025, 4 lakh new investors have invested in mutual fund schemes in India. If you are one of them, you must know that making a withdrawal decision might cause the following issues and here are some purposes of imposing it:

• One of the key purposes of imposing an exit load in mutual funds is to reduce short-term withdrawals. If you withdraw before a certain period, your fund managers might be forced to sell investments prematurely, which impacts other investors.
• To capitalise on short-term market gains, you might think of selling your fund units. However, in turn, such an action makes the job of fund managers to maintain a consistent portfolio strategy difficult.
• Such a charge is also aimed at covering the administrative and operational costs by the AMC or the fund house. This charge gets added back to the fund, benefiting the remaining investors, establishing fairness and a healthy investment environment.

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Types of Exit Load in Mutual Funds

There are 3 different exit loads that you must note after learning the exit load meaning:

1. CDSC or Contingent Deferred Sales Charge

   If you invest in a fund and a CDSC applies, it means your exit load reduces the longer you stay invested in it. If you stay invested for the recommended tenure by the fund, you may not have to pay an exit load.

2. Fixed Exit Load

   As the name implies, funds with a fixed exit load stay the same throughout the recommended period. Suppose a fund house imposes 1% exit load if redeemed within 1 year, you must pay that same charge whether you redeem within 2 months or 11 months.

3. Stepped Exit Load

   This type of exit load in mutual funds applies in a tiered format. To put it simply, a fund with this structure might charge a 1% exit load for 3 months, 0.5% for 6 months and might drop to 0 if you stay invested for more than 1 year.

A Detailed Process to Calculate Exit Load

You can invest in mutual funds either by investing a lump sum or a Systematic Investment Plan (SIP). Below is a guide for calculating the load for a lump sum investment:

• Suppose you invest INR 2,00,000 in a mutual fund at INR 200 NAV and an exit load of 1% under 1 year.
• Now, after 6 months, the NAV grows to INR 210, and the redemption value becomes INR 210*1,000 units = INR 2,10,000.
• You pay an exit load of 1% i.e. INR 2100, and thus, your final redeemable value is INR 2,07,900.

Here is how the exit load on SIP applies:

• In an SIP, each instalment becomes a separate investment, and the exit load applies individually based on the holding period of that contribution.
• Suppose the same exit load as above applies to any SIP redeemed within 1 year.
• Thus, if you invest over multiple months or years, some instalments may incur an exit load, while others may not, depending on their investment duration.

5 Reasons to Exit a Mutual Fund Scheme

1. 1. Underperformance of Funds

      In case you observe your fund performing below the market benchmark and its peers for 1 or more than 1 year, you might choose to exit a certain scheme.

   2. Portfolio Rebalancing

      Suppose the equity market is going up and equities are making up a larger part of your portfolio than expected. Here, you can rebalance it by redeeming from one fund and investing in another.

   3. Goal Achievement

      If you have been investing for meeting goals like a dream vacation, buying a house or for children’s education, and your investments have reached the intended target, you might want to withdraw from the scheme.

   4. Change in Strategy

      Fund managers sometimes shift the fund’s focus from large-cap to mid-cap or even between sectors. If such a shift does not match your goal, you can withdraw.

   5. Need for Liquidity

      For unexpected financial crises, medical emergencies, etc., you might need to withdraw and get cash in hand.

Impacts of Exit Load in Mutual Funds for Investors

Although an exit load might seem to be a minor amount, it might leave a real impact on your return. Especially if you are investing for the short-term, you might see your investment growing for a few months and get wiped out as you exit early.

Exit Load on Different Mutual Fund Schemes

Equity, debt, hybrid, overnight funds, etc., might have the following loads:

• Equity mutual funds can have an exit load of 1%.
• For debt funds, this amount might be low or, in some cases, no load might apply.
• Hybrid funds might apply exit loads based on their policy, and overnight funds also might come with zero exit loads.

Conclusion

Fund houses might apply an exit load in mutual funds if you exit the fund before a specified period. However, based on fund type, it varies, and some funds might not apply an exit load at all.

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FAQs on Exit Load

1. How to avoid exit load in SIP?

When choosing a mutual fund to invest in, carefully note its tenure for exit load. Stay invested beyond that point to avoid it.

2. How do you calculate 1% exit load?

You can calculate the 1% exit load by multiplying the redemption value by the exit load percentage.

3. What is a good exit load for a mutual fund?

A good exit load usually falls between the range of 0% and 1% if you sell units before the specified period.

4. Are exit load and tax the same?

No, exit load is a charge you pay to your fund house for an early exit from the fund. You pay taxes for capital gains from the fund investments, depending on the holding period.