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How is the exit load calculated?

Dhirendra Kumar explains how exit load is calculated and the rationale behind it

How is the exit load applied? Is it applicable only on the profit portion, or is it applicable on the total redemption amount?
- Indranil Haldar

Exit load is applied to the whole amount and even in the case of a loss. So if you invest Rs 1 crore, which depreciates to Rs 99 lakh, and you take it out before the exit load period of, say, one year, wherein exit load is 1 per cent, it will be charged on that reduced amount, which looks very disappointing.

But you have to understand why it is charged. I really like the exit load in equity funds because it acts as a deterrent to short-term actions. If it dissuades some people from selling and have at least a one-year view on their investment, they will understand its merit. It prevents you from thinking short-term. So if you don't want to behave, then pay the exit load. Also, the exit load doesn't go in anybody's pocket. It gets back into the fund, so other investors stand to benefit from it.

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