Exit Load: The exit load is a fee charged by a mutual fund company when investors redeem or sell their units before a specified period. The purpose of exit load is to discourage short-term trading and to compensate the fund for potential costs associated with the early redemption of units. By imposing a fee on early redemptions, mutual funds aim to protect long-term investors from the potential adverse effects of short-term trading activities. Exit load is calculated as a percentage of the value of the units being redeemed and is deducted from the redemption proceeds. For example, if an exit load of 1% applies and an investor redeems Rs 10,000 worth of units, the fund will deduct Rs 100 as the exit load, and the investor will receive Rs 9,900 as the redemption proceeds.

It’s important to note that not all mutual funds charge exit loads, and the specific exit load structure can vary from fund to fund. The details of any applicable exit load, including the duration for which it is charged, are provided in the mutual fund’s offer document or scheme information document (SID).

How to Calculate Exit Load in Mutual Funds:

To calculate the exit load in mutual funds, you need to first know the exit load percentage charged by the mutual fund scheme you are invested in. This information can be found in the mutual fund’s offer document or scheme information document (SID). Usually, exit loads are charged by mutual fund schemes if an investor exits the fund within one year. Let’s look at an example. 

For example, you invest in a scheme that charges a 1% exit load for redemptions within 365 days from the date of purchase. You redeem 1,000 units of a scheme six months after your date of purchase. If the NAV is Rs 100, the exit load will be the percentage charged multiplied by the number of units multiplied by the NAV.

Exit load = 1% ✕ 1000 (number of units) ✕ 100 (NAV) = Rs 1000

This amount will be deducted from the redemption proceeds which get credited to your bank account. 

1000 (units) ✕ 100 (NAV) – Rs 1000 (exit load) = Rs 99,000.

For this example, the redemption amount you will receive is Rs 99,000. 

In the case of SIPs, each SIP installment is considered separately for exit load calculation. 

Keep in mind that the exit load criteria may vary for different mutual funds and schemes.

Expense Ratio: Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to charge certain operating expenses for managing a mutual fund scheme – such as sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees – as a percentage of the fund’s daily net assets. All such costs for running and managing a mutual fund scheme are collectively referred to as ‘Total Expense Ratio’ (TER). The TER is calculated as a percentage of the Scheme’s average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Currently, in India, the expense ratio is fungible, i.e., there is no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit. The regulatory limits of TER that can be incurred/charged to the fund by a Mutual Fund AMC have been specified under Regulation 52 of SEBI Mutual Fund Regulations.