Mutual Funds – All you need to know
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Exit Load in Mutual Funds – Meaning & When It Applies
Key Mutual fund Terms
Exit load is a charge imposed by mutual funds when investors redeem their units before a predefined time period.
Important aspects of exit load include:
Discouraging Short-Term Trading
Mutual funds are typically designed for medium to long-term investing. Exit load discourages investors from frequently entering and exiting the scheme.
Specified Holding Period
Most mutual funds define a minimum holding period, such as one year. If investors redeem units before this period, the exit load becomes applicable.
Percentage-Based Fee
Exit load is usually expressed as a percentage of the redemption value. For example, a 1% exit load on Rs.1,00,000 would mean a charge of Rs.1,000.
Helps Maintain Portfolio Stability
Frequent redemptions can disrupt a fund manager’s investment strategy. Exit loads help maintain stability by encouraging investors to stay invested.
No Exit Load After Holding Period
Once the specified holding period is completed, investors can redeem their units without paying any exit load.
Before investing in a mutual fund, it is important to review the exit load policy in the Scheme Information Document, as it can affect liquidity and short-term investment decisions.
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