Exit load, or redemption fee, is a charge imposed by mutual fund companies when investors redeem or sell their mutual fund units before a specified holding period. It discourages short-term trading and protects the interests of long-term investors by compensating for the administrative costs associated with processing redemption requests. So, if your mutual fund has a 3-year holding period and you wish to redeem your units within a year, you will be charged an exit load.
How to figure out your exit load in a mutual fund?
To determine the exit load applicable to a mutual fund investment, investors should review the fund's offer document or scheme information document (SID). The SID provides details on the exit load structure, including the applicable rates and the holding period required to avoid the exit load. Investors can also consult with their financial advisors and distributors or check the mutual fund company's website for information on exit loads.
How do exit loads vary in different mutual funds?
Exit load structures can vary significantly among different mutual funds and fund categories. Some funds may have a flat exit load rate, while others may have a tiered structure based on the holding period. Additionally, certain mutual funds may waive the exit load for investments held beyond a specified duration. It's essential for investors to carefully review the exit load provisions of each mutual fund before making investment decisions to understand the potential impact on their returns.
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