Entry Load & Exit Load

1. Introduction

Mutual fund houses incurs various expenses like administrative, operative, distribution expenses which are passed on to the investor in form of load.

2. Types of Changes

a. Entry load: It was a charge which was levied at the time of investment in Mutual Funds or we could say while entering the scheme or joining a company as investor. But SEBI abolished entry loads in 2009. So currently, there is no Entry load on all Mutual Fund Schemes. This ban has affected the mutual fund industry as a whole.

b. Transaction charge: From 2011, SEBI has allowed AMC's to collect a nominal amount as a one-time transaction fee, called transaction charge. Following are the details:

In case of SIP's, where your total SIP outgo is more than ₹10,000, a transaction charge of ₹100 will be applicable, deducted in four consecutive equal installments starting with your second installment.
Example of SIP

c. Exit Load: These are the charges which are liable to be paid in case an investor exits a fund before a specified time frame. Mutual funds charge exit loads to discourage investors from leaving mutual fund schemes within a short period. Liquid Funds do not charge any exit load as they are meant for short term only. Every fund defines its own exit load, mostly in the range of 0.25% to up to 3% depending on the type. A fund can either have one exit load – like 1% on redemption before 365 days, Or, it can adopt a staggered approach, charging 1.5% for redemptions before 365 days, 1% on redemption between 366 and 730 days, and 0.5% on redemption between 731 and 1095 days.

3. How is Exist Look Calculated

Exit load is charged as a percentage of net asset value (NAV) held by the investor.

a. Calculation of exit load in case of SIP

Example – Mr.A invested Rs. 10,000 in ABSL Pure value fund on April 2017, NAV at the time of investment was Rs.100. If the investment is redeemed before 1yrs, exit fees of 1% would be charged. On 31^st December Mr.A sold all his units. At the time of sale NAV was 115 Rs

Calculation

b. Calculation of exit load in case of SIP

In the case of SIP holding period is applicable for every instalment of the SIP. Now let us understand it with an example

Mr.A had purchased a scheme of SIP mutual fund from April to October 2017 and sold this scheme on 31,July 2018. Nav at the time of sale was Rs.115. If the investment is redeemed before 1yr, exit fees of 1% would be charged.