Is exit load charged only on gains?

What is an exit load, and how is it calculated? Is it applied only to the profit or the entire redemption amount?- Anonymous

Exit load is a fee that mutual funds charge when investors redeem their units before a predefined period, typically to discourage premature withdrawals. It is usually expressed as a percentage of the redemption amount and varies across funds.

The key thing to note is that the exit load applies to the entire redemption amount, not just the gains. For example:

If you invest Rs 5 lakh and its value grows to Rs 5.5 lakh, and you redeem it within the exit load period (say, one year, with an exit load of 1 per cent), the exit load will be Rs 5,500 (1 per cent of Rs 5.5 lakh). You will receive Rs 5,44,500 after the deduction.

If your investment drops to Rs 4.8 lakh and you redeem within the exit load period, the exit load will still apply to the full Rs 4.8 lakh. In this case, the exit load will be Rs 4,800, and you will receive Rs 4,75,200 after the deduction.

While exit loads may seem like a penalty, they serve an important role by promoting long-term investing and preventing unnecessary churn in the fund. Additionally, the collected exit load is not retained by the fund house but is reinvested into the mutual fund scheme, benefiting the remaining investors.

Check how much exit load applies to your investment.

This article was originally published on February 10, 2025.