Exit load on debt fund

ON OF the biggest question in the mind of debt fund investors is whether they can move in and out of these funds without paying an exit load. Considering exit load is crutial as it can eat away a significant chunk of the returns from the fund.

Therefore, a look at the quantum of the exit load while investing in debt funds is very important for investors. Here is what you can actually do to ensure that you are not penalised on this front.

Exit load:

An exit load is the extra charge that investors have to pay while exiting the fund or selling their units in a fund. It is meant to ensure that investors stay invested for a specific time period and does not continuously enter and exit the fund.

Here the amount of net asset value (NAV) that individuals will get when they sell the units of the fund will be reduced by the extent of the exit load and they will get the net figure. For example, if the exit load is 1 per cent and the NAV is Rs 20, then investors will find that their units are redeemed at a price of Rs 19.8. This automatically adjusts the value in the final amount that investors realise from the investment.

Time period:

One of the most important factors related to exit load is the time period when this will actually be charged.

This means that an investor has to remain invested for a certain period of time otherwise the exit load will come into effect. In debt funds, then there are funds like liquid funds and ultra short-term funds where the investment is actually meant to be for a few days or weeks. In such a case, there is no question of an exit load being present.

This makes the nature of the levy very clear for the individual.

On the other hand, in case of long-term funds, like income funds or gilt funds, exit load will be present for a relevant time period, usually a few months, before which the investment cannot be redeemed. Similarly, some medium-term funds might also have a period of around three to six months fixed for exit load. The longer the time period, the better it is for individuals in terms of chances of a lower impact.

Amount:

The quantum of exit load is not fixed, and can range from anything between 0.5 per cent and 1 per cent for different funds. The range and actual figure for a specific fund depends upon the extent to which the fund seeks to reduce inflows and outflows from itself.

What is important is that investors have to compare the returns that are generated by that specific category of funds with the exit load to see whether there is an element of reasonableness that is present here. This would have to be considered at the time of making the investment because in case of an early withdrawal, it could severely dent the returns that are earned at the end of the day.

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