Solution-oriented funds: Understanding their exit load

'An exit load of 3 per cent is payable if units are redeemed/switched out up to one year from the date of allotment.' One might stumble upon this statement when examining the details of a few solution-oriented funds. Despite these funds having a five-year lock-in, this raises questions about the possibility of early redemption by paying the exit load. What are solution-oriented funds? Solution-oriented mutual funds are designed to help reach specific goals, like a child's education or retirement savings. As of February 29, 2024, approximately Rs 24,930 crore and Rs 18,850 crore are being managed under 11 retirement and nine children's funds, respectively. These funds come with a lock-in period of five years, as set out by SEBI, to discourage premature withdrawals. But the rules also mention, 'Or till the retirement age, whichever is earlier' / 'Or till the child attains majority, whichever is earlier.' And that's where the confusion begins. Let's explain this with a practical example. Consider a scenario where an annual investment of Rs 1 lakh was initiated a decade ago, on February 28, 2014, in Axis Children's Gift Fund, when your child was eight years old. Every annual investment will have a fresh five-year lock-in. Meaning, investments made on February 28, 2014 will be locked in until February 28, 2019. Similarly, investments made on February 27, 2015 will be locked in until February 28, 2020, and so on. Now, you want to withdraw all your investments by February 27, 2024, after your child turns 18. In that case, all the investments made until 2019 can be withdrawn as they have satisfied the five-year lock-in period. Though the investments made from 2021 onwards haven't completed the five-year lock-in, they can also be redeemed as the child has attained the age of 18. But it will attract an exit fee. Here's how much you'll need to pay: Investments made on February 28, 2023, will have a 3 per cent exit fee, as you are withdrawing this amount today, which is the first year of the deposit. Investments made on February 28, 2022, will face a 2 per cent fee, as you are withdrawing within two years of the deposit. Investments made on February 28, 2021, will be subject to a 1 per cent fee, as you are withdrawing the money within three years of the deposit. Any money invested before February 28, 2021, will not be subject to any exit load. *These exit loads are applicable to the Axis Children's Gift Fund. Calculation of exit load of Axis Children's Gift Fund Amount invested (Rs) Date NAV No. of units Cumulative no. of units Value of investment (Rs) Exit load 1,00,000 Feb 28, 2014 27.2 3,676 3676 1,00,000 1,00,000 Feb 27, 2015