Mr Goyal invested Rs 1 lakh in a diversified equity fund in June. The fund wasn't performing as per his expectations and Mr Goyal finally decided to redeem his money last week. However, before proceeding with the final redemption request, he wanted to check the applicable exit load. He picked up the latest fund literature and was happy to see that the fund would be load-free if units were redeemed after 15 days.
Interestingly, the fund changed its load structure about a month ago. Previously, it had an exit load of 1 per cent if the units were redeemed within a year. Thinking that there would not be any exit load, Mr Goyal placed his redemption request. But he was shocked to find that 1 per cent exit load had been deducted from his final proceeds.
This is a common situation faced by many investors. When investors look at the present load structure for their funds, they presume that the same will be applicable even to the investments made in the past. But that is not true. Exit load is charged based on the load structure that prevailed on the date of investment. So, Mr Goyal's investment would be load free only in June 2021, one year after the date of his investment. Similarly, in the case of a systematic investment plan (SIP), the relevant date for the applicability of exit load is the date of the instalment on which your money is invested.
It is quite common for a fund house to change the exit-load structure of a fund for varying reasons. Practically, it is not possible to remember the load structure that prevailed exactly on the investment date. What if Mr Goyal would have invested a few years back instead of a few months? It is common for investors to have SIPs and therefore, it is difficult for them to keep track of the exit loads of their investments.
Having an SIP means that you have been investing over a period of time, generally a few years. And accordingly, the applicability of the exit load would depend on multiple dates on which units have been allotted every month. In the case of SIPs, it is more difficult to calculate the amount, especially if someone invests in more than one fund.
But it is important to know the actual applicable exit load at the time of redemption. It can even change your decision of taking the money out. So, what's the way out?
Request the fund house for the exit-load applicability report
Fund houses do provide a specific report mentioning the actual exit load that is applicable to your investments. However, this has to be either requested to their customer-care representative or in some cases, it can be generated through one of the self-service requests on the AMC's website. Some fund houses also tell you the applicable exit load on your investment just before you click on the final redemption button while redeeming on their online portal. However, that is not the case with every fund house.
CAMS exit-load statement
You can also generate the exit-load statement on the CAMS website. It can be generated by visiting the 'Statement' tab on its website and thereafter, submitting the required details. However, you can get statements based on only individual folios and AMCs, which can be quite painful if you have investments in multiple funds which you plan to redeem at one go.
Using 'My Investments' on VRO Premium
While calculating exit loads, users of Value Research Online Premium get an advantage because of the 'Analysis' feature of our portfolio tool. Our 'Liquidity' section under the 'Analysis' tab calculates the amount of your investments that are exit-load-free and the amount that can be redeemed after paying an exit load. So, it tells you both - the part and amount of your portfolio that can be redeemed without any exit load and the one on which exit load is applicable. This can simply be a starting point for you to ensure that you don't get any unpleasant surprise after redeeming your investments.
The need to reform
Account statements of mutual funds often mention that exit load is applicable as per the load structure that prevailed at the time of investment. Also, they often mention their current load structure, which is generic and applicable to all investors who invest on that particular day. But they fail to inform the investor about the actual applicable exit load in their case if they decide to redeem their money that day itself.
The account statement is a personalised thing containing most of the important information that an investor would like to know. This includes units balance, investment value and so on. However, the actual applicable exit load is one thing that is missing. Fund houses should explore the possibility of taking the personalisation of the account statements a step ahead and mention the true exit load applicable to individual investors. It will ultimately help investors make more informed decisions.