# How is exit load in mutual funds calculated?

On redemption, how exit load is levied? Applicable NAV? Show some examples. - Sakkaraipandian Asokan

If you invest in mutual funds, then exit load is something you should be aware of. Let's understand what it is and how it is calculated.

What is exit load in mutual funds?
Exit load is a fee charged by mutual fund houses in the event that an investor makes a partial or full redemption within a stated period from the date of investment. The time period for which it applies varies with the type of fund. An important thing to note is that the time period is calculated from the date of investment, whether it was in the form of a lump sum or an SIP. Also the exit load that was applicable at the time of investment (and not redemption) is considered. Even if a fund changes its exit load criteria, it will apply only to investments made henceforth and not what was made before.

Let's understand the calculation of exit loads with a few examples., starting with something simple. Let's start with something simple like the case of lump sum investment before moving to more complex calculations such as those in case of SIP's.

Calculating exit load in lump sum investing
Suppose you invest Rs 1,00,000 as a lump sum in a fund on November 1, 2022. At the time of investment, the exit load was 1 per cent for 365 days. The NAV of the fund on November 1, 2022 was Rs 20 and so you were allotted 5,000 units (1,00,000 divided by 20). On June 25, 2023 you decided to make a withdrawal of Rs 50,000. Let's assume that the NAV is Rs 25 on June 25, 2023. So you have redeemed 2,000 units (50,000 divided by 25). At the time of payout, an exit load will be charged since you have made a withdrawal within 365 days of the date of investment.

Exit load = 1 per cent of (2,000 units x Rs 25 per unit) = Rs 500

Amount received upon redemption = Value of units redeemed - Exit load
i.e., (2000 units x Rs 25 per unit) - Rs 500
i.e., Rs 50,000 - Rs 500 = Rs 49,500

Now, if you had made the redemption after November 1, 2023, i.e., upon completion of 365 days from the date of your investment, then you would not be subject to any exit load.

Now let's understand the complexities when your investment is made via SIPs. Suppose you have set up an SIP of Rs 10,000 for the 1st of every month, starting from April 1, 2022 and ending on March 1, 2023. At the time of investment, the exit load was 1 per cent for 365 days. On June 25, 2023 you plan to withdraw Rs 50,000. Let's take a look at what your investments would look like.

Now, it is clear from the table above that a total of 297 units have been invested for more than 365 days and the remaining for lesser periods of time.

Let's assume that the NAV as on June 25, 2023 is Rs 100 and you are in need of Rs 50,000. So the units to be redeemed is 500 (50,000 divided by 100). However, only 297 units are free from any exit loads. Hence, exit load will be calculated as follows:

Number of units to be redeemed = 500 units
Number of units on which exit load applies = 500 - 297 = 203 units

Exit load = 1 per cent of (203 units x 100 per unit) = Rs 203

Amount received upon redemption = Value of units redeemed - Exit load
i.e., (500 units x 100 per unit) - Rs 203
i.e., Rs 50,000 - Rs 203 = Rs 49,797

As you can see, in both the cases, you received less than the amount you wanted to withdraw. This is due to the exit load.

Additionally, the exit load applied will be based on what was applicable at the time of investment. Continuing the above example, suppose the exit load was changed on July 15, 2022 to 1.25 per cent for 365 days. Now the calculation of exit load would be slightly different. It would be as follows:

Number of units to be redeemed = 500 units
Number of units on which exit load applies = 500 - 297 = 203 units

Redeemable units acquired before July 15, 2022 = 396 units
Redeemable units acquired after July 15, 2022 = 500 - 396 = 104 units

Number of units on which 1.25 per cent exit load will be applicable = 104 units
Number of units on which 1 per cent exit load will be applicable = 203 - 104 = 99 units

Total exit load = 1 per cent of (99 units x 100 per unit) + 1.25 per cent of (104 units x 100 per unit)
i.e., 99 + 130 = Rs 229

As you can see, the total exit load has increased from Rs 203 in the previous case to Rs 229 because of change in exit load, w.e.f., July 15, 2022 and that the change applies only to investments made afterwards and not to the ones made prior to the change.

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