One of the vital aspects for investors to comprehend before capitalizing is the exit load in mutual fund. The following guide helps you understand the essentials of exit load and the charges to make intelligent investment decisions.
Investors must be cautious of all levied charges when capitalizing in mutual funds. One such fee type that comes into play is the exit load. It is a fee mutual fund companies impose on investors when they want to redeem their investment before a stipulated period. The investors must be thoroughly aware of how exit load in mutual fund works and the corresponding effect on their investments. The present article guides you on what is exit load in mutual fund and discusses the reasons behind why it is levied. The article also shares strategies investors can implement to reduce its impact on their investment returns. The sections below will highlight more details on the exit load in mutual fund.
1) Importance of Exit Load in Mutual Fund
Mutual funds have become well-known investment alternatives for a myriad of individuals. The reasons can be varied and professionally administered approach. Such funds amass money from diverse investors and then capitalize on a multifaceted portfolio of securities (like bonds, stocks, and other financial instruments).
Before delving deep into the landscape of mutual funds, you must be aware of the entry load and exit load in mutual fund. This is because these concepts play vital roles in deciding the returns.
The fee related tothe exit load in mutual fund gets subtracted from the redemption proceeds. It differs across various mutual funds. Note that exit load serves as a deterrent for investors who might be interested in withdrawing their investments within a short duration. Hence, it promotes long-term investment prospects.
The exit load in mutual fund is vital for various reasons. First, it assists fund managers in easily and effectively managing the fund’s liquidity needs. In case a large number of investors wish to redeem their units simultaneously, the fund may have to sell its primary securities.
Along with knowing what is the exit load in mutual fund, you must also know its consequences. It discourages recurrent trading and helps avoid large-scale redemptions. So, it decreases the effect on the fund’s performance. Also, it encourages investors to stay invested for the long term. So, it is inevitable to explore the advantages of compounding
2) Exit Load in Mutual Fund: Types
There are chiefly two types of exit load in mutual fund:
Short-term exit load: It is levied when the investor redeems their investment in a stipulated short-term duration, usually a few days to a year.
Long-term exit load is levied whenever the investor exits the scheme before a long duration (usually surpassing a year).
Being aware of various types of exit load in mutual fund is crucial for investors to fulfill their investment goals and duration with the mutual fund’s terms.
3) How Exit Load in Mutual Fund Impacts Investment Returns
The exit load in mutual fund could differ based on the fund. If you are confused about how to calculate exit load in mutual fund then note that it can be computed as a percentage of the overall value of the investment/flat fee.
For example, a mutual fund might levy a 1% exit load if you redeem your units within a year of investment. This implies that if you have invested INR 10,000 and plan to withdraw your money in the first year, you need to pay INR 100 as an exit load.
Considering the charges associated with exit load in mutual fund before making investment decisions is vital since they can reduce your profits. Depending on the investment duration, you can consider exit load in SBI mutual fund. Choose funds with low or zero exit loads for short-duration investments to maximize your returns.
4) How To Minimize Charges Levied On Exit Load in Mutual Fund
Investors must be aware of the exit load charges linked with mutual funds. To minimize these charges, you must comprehend the terms and conditions agreed upon by the mutual fund scheme.
Some mutual funds charge a higher fee to ensure early redemption. On the other hand, some other mutual funds reduce the charges gradually over time. Meticulously understanding the structure of the exit load in mutual fund before investing helps you to select the one that outfits your investment goals and duration.
Another effective tactic to reduce exit load charges is to choose r mutual funds with shorter lock-in periods. You can also consider exit load in mutual fund SIP or exit load charges in HDFC mutual fund. Lock-in periods denote the duration an investor is forbidden from redeeming their units without paying exit load fees. If investors choose funds with shorter lock-in periods, they can exit their investments sooner, reducing exit load charges.
Conclusion
To minimize exit load charges, you must carefully evaluate lock-in periods, the exit load structure, and the investment timeframe. Understanding these aspects and aligning them with your financial objectives helps you to make intelligent investment decisions. They also allow you to decrease the impact of exit load charges on investment returns. Before investing, thoroughly read the scheme documents to ensure you are entirely aware of any potential charges associated with exit load in mutual fund. You can consult BeWealthy to get more info on how to minimize exit load charges.
FAQs
1) When and why is the exit load levied?
Exit load gets levied to daunt investors from extracting investments before a predetermined amount of time. As a result, it assists in protecting all the investors’ financial interests.
2) Does the exit load apply to a liquid fund?
Yes, exit load in mutual fund exists in liquid fund investments if withdrawn within 7 days from the investment’s date.
3) Does one need to pay an exit load when he/she sells his/her mutual fund after encountering loss?
You must pay an exit load whenever you redeem your units after experiencing a loss. Note that the exit load is levied on the redemption proceeds, not on the capital gains.