Understanding exit load

Hi!

I started my investment journey back in may start, and invested rather randomly without any thoughts. As I came to realise that, I wished to withdraw that amount and invest somewhere else after proper research. I found that it’ll subject me to exit load (at least for the fund of concern). That’s fine as I invested very less amount, but I wanted to clarify some doubts.

The following is specified in the final statement:

Axis Small Cap Fund - Direct IDCW Payout(SC-D1) : Entry Load - NIL, Exit Load - NIL,Scheme re-opens on: November 29, 2018 (after 5 years, on conversion to an open ended scheme) w.ef., 29/11/2013 Exit Load: If redeemed / switched-out within 12 months
from the date of allotment:For 10% of investments: NIL on FIFO basis For remaining investments: 1% w.e.f., 29/11/2018

These are my understandings from this:

  1. There is no charge for starting investment in this scheme.
  2. If I redeem after 1 year of my investment, there is also no charge.
  3. If I redeem before, then there can be charges.

Let’s say I invested ₹1000/- (for simplicity, I’m assuming this is after stamp duty - if this assumption creates issues, let me know) on May 1, and it’s current value is ₹1050/-.

  1. If I redeem up to ₹100/-, there will be no charge.
  2. If I redeem more than ₹100/-, say for example ₹500/-, I have to pay charge of 1%, i.e. ₹5/-, and ₹495/- will be credited to my bank. (Another possibility is the charge of 1% is only for above ₹100, so I need to pay charge of ₹4/- instead of ₹5/-, let me know if that’s the case)

Please let me know whether these are correct or not. These are two points that I can think right now:

  1. I assumed ₹1000/- as both gross and net investment, essentially ignoring the stamp duty. That may have some role.
  2. For the redemption charges, there can be two other possibilities.
    1. The charge is applicable only on the gain and not on the primary investment. So charge will be calculated on ₹25/- (current value of ₹500/-) and not ₹500/-. But I don’t think it’s the case.
    2. Another more likely possibility is that the charge is calculated only on the amount above ₹100/-. So it’ll be calculated on ₹400/- instead of ₹500/-, similar to income tax calculation.

The context of my asking this is in the statement, I don’t see any deduction for exit load, but a charge of 0.001% as STT. This is unexpected to me, and that’s why I want to understand how exactly it’s calculated.

Thanks.

PS. Probably this is not the right question, but I want to know whether the charges is calculated same way for all mutual funds or not. Rates may vary, even be zero, is the calculation same?

I read the statement again, and I think there is actually a deduction.

While this is true, I believe the calculation of latest value has some adjustments. This is because there are two columns NAV and Price in, and they have different values. The former has value of ₹34.8200/-, and the latter has ₹34.5100/-. Dividing the Amount in column by Units produces the Price in value approximately.

But I don’t understand the computation of these reduced price per unit from the reported NAV, so an explanation will be very helpful.

Hello! Can anyone please offer some answer? It’ll be nice to know the process.

It sounds like Price in is your purchase price. If you bought two or more lots on different dates, then this would be your average purchase price.

At least, this is what it sounds like, from your description. You can check the document that you got when you bought the units, to see if this is the case.

Also: never ever ever buy the dividend (“IDCW”) variants of mutual funds. They used to have some utility a few years ago, but right now they are a stupid thing to have because of the current tax laws.

About your original post:

  • The various percentages (like “10% of investments”) are computed on the number of units, not on the total purchase price or total NAV.

  • The exit load is applied to the gross holdings (beyond the exempted limit, if there is such an exemption specified), not just to the profit.

Apart from these, your understanding is correct.

Thanks for the response.

As I said, I started investments by choosing schemes completely randomly. Then I realised my mistake, and asked questions. I asked here also previously regarding comparison of Growth/IDCW Payout/IDCW Reinvestment, and I believe you shared this opinion there as well. That’s why I’ve started to redeem those, and will invest in Growth mode afterwards.

Unfortunately, this makes me more confused. Since Price In is used to determine what amount will be aid out to me, I would have expected this to be the NAV of the last date, not of purchase date.

Also, I checked it’s not the average. I bought in two lots at ₹31.69/- and ₹34.25/-. So, simple/weighted average none will make it higher at ₹34.82/- or ₹34.51/-.

I can give more information that I redeemed from a SBI Debt scheme as well, and that calculation is clear. They used unadjusted sell date NAV for first 8% units, and 1% adjusted one for the rest, which matches with the exit load statement mentioned in the factsheet.

That’s why I was more confused why it varies for Axis one. :frowning:

I’ve tried to calculate it in the same format SBI calculated, and it varies by some amount. It’s really small, around ₹0.20/- for my investment of ₹1000/-. But had it been a larger investment, this could be higher, and that’s worrying.

I cannot say much without seeing the document, but:

  • Yes, these numbers don’t make sense as the average purchase price.
  • Why do you say that Price In is used to determine the amount paid out to you?

These are rounding errors, which happen because the computation has to be cut off at some digit after the decimal place. You should really not bother about such variations. They tend to happen in both directions: sometimes you get a tiny bit more, other times you lose a tiny bit.

The amount I received (what I actually received in my bank, and not just in statement) is same as Price In * (sum of purchased number of units in two lots), subject to 0.001% STT, if I ignore rounding errors.

I am a beginner investor too so you might want to correct me if you find better (or correct) info than the one I present here. I have the explanation & a query.

Explanation
Since you state in the last post that the amount received “in your bank” was subject to STT I will discount STT in the calculations here.

NAV = 34.82

Exit Load on Redemption before 1 year is,
10% investment: NIL
Rest 90%: 1%

So, the 1% exit load is levied on 90% of the investment.

90% of 34.82 = 31.338

(I am applying 90% to NAV here instead of investment for simplicity. In fact, the exit load calculations can alternately be applied to the Investment or NAV or even the MF Units due to the ‘associative property of multiplication’)

1% of 31.338 = 0.31338

Deducting this 1% from the Full NAV…
34.82 - 0.31338 = 34.50662

Rounding it to 2 decimal places gives 34.51 which matches your Price_In value.

The Price_In value is nothing more than the “given for your convenience NAV” to help you check your “effective NAV” post exit load deduction.

As for the STT, as per my understanding, it is applied on the total redemption which would be 0.001% of NAV (34.82) x MF-Units-redeemed.

Query
Is the STT of 0.001% clearly mentioned in your Statement from the AMC & does the bank account reflect the same? I am asking because there is contradicting information regarding STT on the net. If you search for “equity based open ended mutual fund stt” (your MF is one of those) several sites say it is 0.025%. But, then those are 3rd party sites. AMFI doesn’t mention open/close ended schemes just says delivery/non-delivery based mutual funds & the STT mentioned there matches with what you state (0.001%).
Is the STT 0.001%?

1 Like

Thanks for answering :slight_smile:

Yes. The AMC statement clearly mentions STT paid on above (@0.001%). This was calculated on the product
of number of units and modified NAV of ₹34.51/-. However bank account doesn’t have mention of STT, that only has a single transaction corresponding to reduced figure.


Regarding your explanation earlier, that’s very interesting to me. It matches the final result, no doubt about that, but it’s not very intuitive, at least not to me.

IMO, it’d make more sense to apply unchanged NAV on first 10% units, and apply 99% NAV on the rest, and repeat it for every time I purchased.

As you said, these two are probably equivalent (subject rounding error). If I redeem in future subject to exit load, I’ll see if it matches the following or not:

NAV * (0.10 + (1 - 0.10) * (1 - 0.01)) * Units

(with appropriate changes in the percentage figures)

As I said, you can do it your way too & should still get the same answer. Thanks to the formula you posted at the end I can see the source of your confusion. You are simply implementing an incorrect formula.

The 3rd constant in your formula is 0.1 which is supposed to be the 1% exit load on the remaining 90% (0.9) of your units. So far so good. Firstly, 1% is 0.01 & not 0.1 but we are not going to use it anyway.

Second, the formula is used to calculate what “you” receive after deduction. And what you receive after deduction is Full NAV on the 10% units and… (here is the factor you miscalculated) “99%” on the remainder of the 90% units. So your formula should be…

NAV * (0.1 + [0.9 * 0.99]) * MF Units

Thanks. I was actually doing that only, but made a horrible typo while posting. Thanks for pointing it out. I fixed it above

Yes. Now with your edited formula you should be able to get the exact same amount that was redeemed to your bank (excluding the STT).