I am not into MF. Today, a friend of mine informed me she is waiting for one year to pass before she wish to redeem her MF. I was surprised, I thought exit load was there only for unique MF but was surprised to know that all MF with a small exception charge this.
Should AMCs not waive this, if they believe in their fund. Maybe the first month or max 3 months to the max to avoid frequent buy and sell. 1 percent is quite high. I read that exit load for Index fund is nil. Thank God for this.
The commission is higher when compared to ETFs and then this too. Not heard too many people talk about this aspect when they recommend MF.
Mutual funds are designed for long-term investing, not for short term. Premature exits can disrupt a fund’s cash flow, forcing managers to sell securities, which reduces returns for remaining investors. The exit load acts as a penalty that discourages this behavior.
ETFs are traded on the stock exchange like shares hence they do not have any exit load.
Note: Some index funds have 0% exit load, but not all. Most sectoral/thematic funds typically have a short exit load period of around 30 days.
But dont you think the one year is too long. Basically stuck with a fund until penality is paid. When people talk about how good mf are, yes they are great, but they do not talk in lenght about this aspect.
This is a good point. I understand they might be forced to sell if they are no cashflows coming in to meet the redemption. But with a penality of 1%, how do they manage. Does this penality go to the common pool of the specific fund or will the AMC take it. If it is going to the pool, which then get reinvested, then it is ok.
EDIT: I got the answer The exit load penalty in mutual funds does not go to the Asset Management Company (AMC) as profit. Instead, it is credited back into the specific scheme’s pool , where it is reinvested to benefit the remaining long-term investors.
I think so too. Index funds beat most active funds anyway. So no point in exit load funds. Furthermore they seem to only use the funds to absorb FII selling or for their friend’s IPO’s like Lenskart or at government’s bidding. They don’t seem to serve investor’s interests at all.
Not all. Many equity funds have 1% exit load, but hybrid funds have lesser and only beyond a limit, also Index funds dont really have exit load for the most part.
Btw FDs also have some form of penalty for premature withdrawal
It does NOT go to the AMC as profit. It is credited back to the same mutual fund scheme (the pool). That money goes into the fund’s corpus (AUM) and the remaining investors benefit slightly
Right. Mutual fund exit loads make sense to me—especially for small- and mid-cap funds, which are designed for long-term investing (5+ years). If someone is looking for short-term opportunities, ETFs or direct equity shares are more suitable. Even top-performing funds like Parag Parikh Flexi Cap Fund have exit load periods of up to 730 days (2 years). This highlights the importance of discipline, as mutual funds are fundamentally meant for long-term investing.
This also highlights one point, do proper and detailed research before investing in MF as well just like investing in invidual stocks.
Still remember one user here advised me of the catch in momentum ETF, since then avoided this ETF in total.
Yes, proper research is essential before investing in any security—no investment is perfect. We need to choose the option that best suits our needs.
momentum ETF drawback = Late entry and exit, no valuation check and frequent rebalancing (Hidden Cost)
