Exit Load in Mutual Funds

What is Exit Load in Mutual Funds?

Exit load is a fee charged by AMCs when investors withdraw their mutual fund units within a specified period. It is deducted from the Net Asset Value (NAV) and reduces the redemption proceeds received by the investor. Not all mutual funds in UAE impose exit loads, and the applicable rate and period varies across different funds.

Purpose of Exit Load

Types of Exit Load in Mutual Funds

1. Contingent Deferred Sales Charge (CDSC): Exit load decreases over time. If units are held beyond a specified period, no exit load applies.
2. Fixed Exit Load: Charges remain constant throughout a specified period. For example, a 2% exit load applies regardless of whether the investor redeems in one month or one year.
3. Stepped Exit Load: The exit load reduces in stages over time, incentivising long-term investment in UAE.

How is Exit Load Calculated?

Exit load in mutual funds depends on the redemption value, the duration of the investment, and whether the fund offers a no-exit-load period.

Here’s how you can calculate exit load mutual fund —

1. Time-Based Exit Load Structure

Many mutual funds apply a tiered exit load based on how long the investor holds the units. The longer you stay invested, the lower the exit load.

For example, a fund may impose the following charges —

• 1.5% if redeemed within 6 months
• 1% if redeemed between 6 to 12 months
• 0.25% if redeemed between 12 to 18 months
• No exit load if held for more than 18 months

This means that if you withdraw your investment before six months, you will pay the highest exit load, whereas after 18 months, no exit fee applies.

2. Percentage of Redemption Amount

Exit load is typically a percentage of the redemption amount. If a mutual fund imposes a 1.5% exit load and you redeem AED 2,000, the calculation would be —

Exit Load = Redemption Amount × Exit Load Percentage
Exit Load = AED 2,000 × 1.5% = AED 30

So, instead of receiving AED 2,000, you would get AED 1970 after the exit load is deducted.

3. No Exit Load Period

Some funds allow investors to redeem their units without any exit load after a specified holding period. For example, liquid funds typically do not charge an exit load, while some long-term investment funds waive the exit load after a 1-year holding period.

Exit Loads on Different Mutual Funds

Different mutual funds have varying exit load rates, and not all funds impose this fee. It is advisable to check the exit load of the mutual fund schemes you plan to invest in.

• Debt Funds: Lower exit loads than equity funds. Some may charge 0.5% to 1% if redeemed within 6-12 months
• Equity Funds: Often have short-term exit loads to discourage early withdrawals. Typically charge 1.5% if redeemed within 12 months. Some may not charge any exit load
• Hybrid Funds: Exit load depends on the equity-to-debt ratio, usually 0.5% to 1.5% for early exits
• Liquid Funds: Generally 0 exit load mutual funds, but some may charge a nominal fee if withdrawn within 7 days
• Arbitrage Funds: Many charge an exit load if redeemed within 15 to 30 days, contrary to the belief that they function like overnight funds.
• International/Thematic Funds: May impose higher exit loads (up to 2%) due to their niche investment strategies.

Reasons to Exit Mutual Funds

We have outlined a few key reasons why you may exit mutual funds —

• Underperformance: Consistent poor performance may warrant an exit
• Financial Goals Met: If investment objectives are achieved, exiting makes sense
• Portfolio Rebalancing: Selling funds may help maintain the desired asset allocation
• Change in Fund Strategy: If the fund alters its investment approach, it may no longer align with investor goals
• Liquidity Needs: Unexpected expenses or planned withdrawals may necessitate redemption

Frequently Asked Questions