What is entry and exit-load in mutual funds?

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Mutual fund inflows into Indian markets have seen record levels in the last few years, with

What is entry and exit-load in mutual funds?
Since the investors size is increasing tremendously, we should understand what an entry and exit load in a mutual fund means and the difference between entry and exit load of a mutual fund scheme.

What is entry and exit load in a mutual fund scheme?

Entry and exit-load are one of the integral charges linked with MF investments.

Several administrative, operative, distribution expenses in addition to the costs pertaining to issuance of mutual funds are incurred by mutual fund organizations that is in general passed on to investors in the form of loads. Simply stated, it is the commission charged for investing in mutual fund scheme by Asset Management companies (AMCs).

Entry Load is a percentage of fee levied on the purchase of a mutual fund scheme. The levying of entry load reduces the investors' investment. For instance, a mutual fund scheme with 5% entry-load would deduct entry-load from the amount invested into the scheme and invest the remaining amount. Further, in simple parlance, investors purchase a mutual fund scheme at the net asset value (NAV) plus the entry load.

Of late to the respite of investors, entry load which was charged at the rate of 2.25% has been banned. However, the step in this direction has badly-affected the distributors in the mutual fund industry. Further, it has been reported that due to the newly issued ban on entry load, mutual fund industry has been affected as a whole.

Exit load is levied as a percentage amount when the investor wishes to exits or redeem one's mutual fund investments before the otherwise stipulated period. Thus, while an exit is made by the investor from a mutual fund scheme, the return that accrues on account of the investment made gets reduced as the percentage of exit load is reduced from the NAV. Further, the percentage of exit-load varies from scheme to schemes. This exit load is indeed retained by the asset management company and does not form the part of the corpus of the scheme.

There is yet another type of exit load referred as Contingent Deferred Sales Charge (CDSC). The levy of CDSC commands the investors to pay varying exit loads with respect to the investment term. If the investor remains invested in the mutual fund scheme for a relatively-long term, the % of exit-load charged is reduced. However, if the investor wishes to make an early exit from the investment, one has to part with huge amount as exit-load charges.

Also, for investor's know-how, there are certain mutual funds that do not charge sales load. Such funds are therefore referred as no-load funds.

Entry and exit loads of various mutual funds in India

Most of the mutual funds in India, adopt a pretty much standard approach of 1 per cent, as exit load, if the amount is withdrawn benfore 1 year. This is because, there is an expenditure that the mutual fund incurs, which is why there must be a charge.

In India, HDFC Equity, Birla Sun Life Equity Fund etc., charge if the exit is before 1 year.

However, ICICI Prudential Multicap charges an exit load of 1 per cent, if the exit is before 540 days. On the other hand HSBC India Opportuities Fund, does not charge an exit load at all.

So, exit loads really differ from mutual fund scheme to mutual fund scheme.

Difference between an entry and exit load

These days mutual funds do not charge an entry load and the mutual fund exit load differs. the major difference between both is that one is levied at the time of entry or buying a mutual fund scheme, while the other is levied at the time of selling a mutual fund scheme.

Goodreturns.in

Read more about: mutual funds, entry load, exit load, amfi
Story first published: Friday, July 5, 2013, 11:48 [IST]
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