Exit Load In Mutual Fund: What it is & How to Calculate it?

Exit Load is a term that often grabs the attention of Mutual Fund investors. Understanding the Exit Load in Mutual Funds is crucial for investors who want to understand the complex world of Mutual Fund investments. This guide will explain the concept of Exit Load, its significance and the simple calculation process involved. By understanding Exit Load, investors can make informed decisions that align with the objectives and long-term stability of their Mutual Funds.

What Is A Mutual Fund Exit Load?

The ICICI Bank mutual fund exit load is defined as a fee that investors may have to pay when they withdraw their investment from a mutual fund before a specific time period. It is charged by the fund house to discourage early withdrawals and protect long-term investors.

For example, if you invest ₹10,000 in a mutual fund and decide to redeem it within 12 months, and the exit load is 1%, you will receive ₹9,900. The remaining ₹100 is charged as exit load.

When investing through ICICI Bank’s iMobile app or the Internet Banking platform, you can easily check if a mutual fund has any exit load. Not all mutual funds have exit loads, so it’s important to read the fund details carefully before investing to avoid any surprises later.

What is the Exit Load of Mutual Funds in ICICI Bank?

When we talk about the exit load of mutual funds in ICICI Bank, it depends on the mutual fund scheme you choose. Some funds may charge 1% if you redeem early, while others may have no exit load at all. When you invest through ICICI Bank’s iMobile app or Internet Banking, the exit load details are clearly mentioned before you confirm your investment. Always check this information to avoid paying extra charges and to make smarter, more informed investment decisions.

Although exit load is a small fee you may have to pay if you withdraw your mutual fund investment before a certain time, often 1 year, knowing this can help prevent frequent buying and selling, therefore supporting a long-term investing pattern. 

The Importance of Exit Load in Mutual Funds

The significance of Exit Load in Mutual Funds goes beyond financial implications. It plays a crucial role in shaping the fund's dynamics.

Balancing investor commitment:

Exit Load acts as a mechanism to balance the commitment level of investors. Discouraging premature exits ensures those participating in the fund are genuinely committed to the investment journey.

Mitigating market impact:

Frequent buying and selling can have a bad impact on the market. Exit Load is a protective measure, preventing excessive market volatility caused by abrupt changes in the fund holdings.

Enhancing fund manager focus:

Exit Load shields fund managers from the distractions of short-term market fluctuations. Fund managers can adhere to their long-term strategies without the pressure of managing frequent redemptions.

Encouraging informed decisions:

Investors who are aware of the Exit Load implications are encouraged to make more informed and thoughtful investment decisions. This contributes to a more responsible investment culture within the Mutual Fund landscape.

Facilitating fund stability:

Stability is crucial for the overall health of a fund. Exit Load acts as a stabilising force, discouraging sudden large-scale withdrawals that could impact the fund's ability to meet its objectives.

Aligning with the fund objectives:

Mutual Funds have specific objectives and strategies. Exit Load aligns the investors with these objectives, ensuring short-term market behaviours do not compromise the fund's mission.

Exit Load serves a dual purpose of protecting the fund against any possible disruptions caused due to frequent trading by investors and also promotes commitment and informed decision-making.

How to Calculate Exit Load in Mutual Funds?

The calculation of Exit Load is a straightforward process. Let's break it down step by step:

Determine the holding period:

Identify the specified holding period set by the fund scheme. This duration can vary among different funds.

Check the Exit Load structure:

Review the fund's documentation, specifically the Scheme Information Document (SID) and the Key Information Memorandum (KIM), to understand the Exit Load structure. Exit Load is often expressed as a percentage of the redemption amount.

Calculate the Exit Load:

Once you have identified the holding period and Exit Load percentage, you can calculate the amount. Multiply the Exit Load percentage by the redemption amount.

Example: Suppose you redeem Rs 10,000 from a Mutual Fund with 1% Exit Load for investments held for less than one year.

Exit Load = Rs 10,000 * 1% = Rs 100

Types of Exit Loads in Mutual Fund

Exit Loads can be classified into two main types:

Contingent Deferred Sales Charge (CDSC):

A back-end load, CDSC is charged when you redeem your units within a specified period. The longer you hold your investment, lower the CDSC becomes.

Contingent Deferred Sales Load (CDSL):

This type of Exit Load is incurred when you redeem your units, but the amount is calculated based on the initial investment instead of the current value. Similar to CDSC, the load decreases over time.

Exit Load on SIP

When we talk about exit load on SIP, it refers to a fee that is being charged when you redeem units before a certain time period. Every SIP is taken as a separate investment because the holding period for calculating the exit load is counted from the date of each purchase.

It means if you redeem your units early, then the exit load on Mutual Fund may apply to specific SIP contributions and not on the entire amount. If you want to avoid this cost, you can hold units for the required period, usually 6 months to 1 year, before redeeming. It helps to ensure maximum returns.

Exit Load in Different Mutual Funds

Exit load may vary as per different Mutual Funds. These are as follows:

• In terms of equity Mutual Funds, the exit load is generally 1% if units are redeemed within 1 year.

• For debt funds, it may be lower or no exit load, depending on the scheme.

• Liquid and overnight funds may also come with zero exit load.

• Hybrid or balanced funds also apply exit loads according to their investment mix and policy.

It is important to keep updated with these charges as they can impact your returns.

How to minimise Exit Load in Mutual Fund impact

Stay informed:

Before investing, thoroughly review the documents of the specific fund to understand the Exit Load structure and holding period.

Invest for the long-term:

Aim for a longer investment horizon to reduce the impact of Exit Load.

Consider low or no Exit Load funds:

Explore funds with lower or no Exit Loads if you are thinking of redeeming your investments earlier.

Plan redemptions wisely:

If possible, plan redemptions when the Exit Load is minimal or has expired.

Conclusion

As a Mutual Fund investor, it is crucial to understand the concept of Exit Load. This tool is designed to maintain stability within the fund, protect long-term investors and discourage short-term trading. By better understanding Exit Load and its calculation, investors can make more informed decisions and align their investment strategies with the financial goals. Remember, even a little knowledge can go a long way in optimising your investment journey.