{"id":6479,"date":"2022-03-03T21:22:51","date_gmt":"2022-03-03T15:52:51","guid":{"rendered":"https:\/\/aayushbhaskar.com\/?p=6479"},"modified":"2022-03-03T21:22:51","modified_gmt":"2022-03-03T15:52:51","slug":"how-to-lower-or-get-rid-of-exit-loads-in-mutual-funds","status":"publish","type":"post","link":"https:\/\/aayushbhaskar.com\/how-to-lower-or-get-rid-of-exit-loads-in-mutual-funds\/","title":{"rendered":"How to Lower or Get Rid of Exit Loads in Mutual Funds?","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Mutual funds are a great way for beginners to start investing, but did you know that many mutual fund companies have exit loads that can eat away at your gains?<\/span><\/p>\n

“Exit load” is a slightly misleading term. It is not the amount you lose if you exit, but the amount you lose if you\u00a0<\/span>exit<\/span><\/em><\/strong>\u00a0<\/span>prematurely<\/span><\/em><\/strong>.<\/span><\/p>\n

It is important that as an investor you know how to reduce exit load in mutual funds because this will help you save on costs and make more money from your investments.<\/span><\/p>\n

In this post, we will discuss how to reduce the exit load in mutual funds so you can make better investment decisions.<\/span><\/p>\n

But first, let us understand what exit load is, why is it charged, how is it different from the expense ratio, and finally, how to get rid of it.<\/span><\/p>\n

What is Exit Load?<\/span><\/h2>\n

Exit loads are deductions that you incur when you redeem mutual funds. <\/span><\/p>\n

Mutual fund companies deduct the exit load from the value of your investment<\/a> and then give you the balance. Most mutual funds have an exit load, but some do not.<\/span><\/p>\n

For example, if you have a Rs 1 lakh equity mutual fund investment, and the fund company charges a one percent exit load, you will receive Rs 99,000 on redemption.<\/span><\/p>\n

Exit Load on SIP<\/span><\/h2>\n

The concept of exit load in SIPs perplex most investors. Let me help you understand it better.\u00a0<\/span><\/p>\n

Investors believe that if they began an SIP a year ago, they will not be charged a load if they sell the investment within the time frame specified. However, many investors get it wrong.\u00a0<\/span><\/p>\n

The exit load on SIP is the same as it is for all other mutual funds. The lock-in period must be completed for\u00a0<\/span>each SIP installment<\/span><\/em><\/strong> to avoid the exit load.<\/span><\/p>\n

For Example: If you have been investing for three years, i.e., 36months. If there is a one-year lock-in period, you will be able to redeem your SIP on the 48th month without incurring Exit Load.<\/span><\/p>\n

Why Exit Load is Charged?<\/span><\/h2>\n

The main reason is to discourage investors from withdrawing their money frequently. Mutual funds invest in stocks<\/a> and bonds of companies. The fund manager has to sell off his investment when you withdraw your money and give you the cash instead. <\/span><\/p>\n

This can lead to higher losses for other investors in the same mutual fund. Hence, AMCs charge a small fee when you withdraw your money.\u00a0\u00a0<\/span><\/p>\n

Mutual funds charge an exit load for withdrawing money from the fund before a specified lock-in period.<\/span><\/p>\n

This is to discourage investors from exiting the fund prematurely and to ensure that the fund manager has sufficient funds at his disposal to manage the mutual fund schemes.<\/span><\/p>\n

How is Exit Load different from Expense Ratio?<\/span><\/h2>\n

To begin with, let’s understand how mutual funds work. Mutual funds have an underlying portfolio of securities and an asset management company (AMC) that manages it. <\/span><\/p>\n

The AMC invests your money in their in-house or affiliated schemes and generates returns out of it.<\/span><\/p>\n

Now, these returns can be in the form of dividend<\/a> payout or dividend reinvestment depending upon your choice. These AMCs charge you a fee for managing your money and this fee is known as the expense ratio.<\/span><\/p>\n

Both Exit Load and Expense Ratio are charges levied by mutual fund houses and are a part of your scheme’s NAV (Net Asset Value). They impact your returns in different ways, however.<\/span><\/p>\n

The exit load is a fee imposed on you if you redeem your investments within a period from the date of investment. If you don’t pay attention to the fine print, it can be a major drain on your returns.<\/span><\/p>\n

The expense ratio is the annual cost that covers all expenses incurred by the fund house, including administrative costs, distribution costs, and remuneration for fund managers.<\/span><\/p>\n

In contrast, unlike an exit load, which is charged at redemption, expense ratios are charged every year as long as you remain invested in a particular scheme.<\/span><\/p>\n

Exit load ranges from Nil to a maximum of 6%, whereas Expense Ratio ratio ranges from 0.5% to 2.5%.\u00a0<\/span><\/p>\n

And finally, how to lower or get rid of Exit Loads?<\/span><\/h2>\n

If you want to save yourself the exit load, here are the practices you can follow:<\/span><\/p>\n

1. Stay invested for long:<\/span><\/strong><\/p>\n

By holding on to the funds for a longer period, the impact of volatility and market risk gets mitigated, leading to better returns. <\/span><\/p>\n

By staying engaged for longer, you will be able to profit from the growth potential of shares while also mitigating adverse market moves.<\/span><\/p>\n

Most notably, Exit Loads will be eliminated.<\/span><\/p>\n

For short-term goals, you can invest in Short-term liquid funds or Bank Deposits to get rid of Exit Loads.<\/span><\/p>\n

2. Mutual Funds scheme without exit load:<\/span><\/strong><\/p>\n

Although some mutual funds have exit loads for all schemes, there are also some that have no exit loads for a few of their schemes.\u00a0<\/span><\/p>\n

So choose wisely!\u00a0<\/span><\/p>\n

Here is the list of some Mutual Fund schemes with No Exit Load:<\/span><\/p>\n