8.4 Entry and Exit Load and Its Impact on NAV

Entry Load Is Nil

Since August 2009, SEBI has prohibited entry load on mutual fund schemes in India. An investor's money is invested at NAV with no deduction.

The abolition was the reform that reshaped Indian distribution. Before it, an investor putting in INR 1,00,000 into a scheme with a 2.25% entry load had INR 97,750 invested, with the balance funding distributor commission. The investor started 2.25% behind on day one. Removing entry load moved distributor remuneration into the expense ratio, and the eventual move to a full trail model in 2018 completed that shift.

A distributor should be able to state the current position without hedging: you buy at NAV; nothing is deducted from your investment at entry.

Exit Load

Exit load is a charge deducted from redemption proceeds when units are redeemed within a period stated in the scheme documents.

Its purpose is not revenue. It is to protect continuing unitholders from the costs that short-term money imposes: forced selling to meet redemptions, transaction costs, and the disruption of managing a portfolio against unstable flows.

The defining rule:

Exit load is credited back to the scheme, not retained by the AMC.

That is what makes it a protection rather than a fee. The investors who stay receive the compensation for the cost caused by the investor who left.

How Exit Load Applies

Worked example. Scheme with an exit load of 1% if redeemed within 365 days. An investor holds 4,000 units, redeems on day 200, and the applicable NAV is INR 62.50.

Gross redemption value = 4,000 x 62.50        = INR 2,50,000
Exit load              = 1% of 2,50,000       = INR 2,500
Net amount payable                            = INR 2,47,500

Note precisely what happened. Units were redeemed at the full NAV of INR 62.50. The load was deducted from the proceeds afterwards. NAV is not adjusted for load — a distinction the exam tests directly.

The INR 2,500 goes back into the scheme, benefiting the remaining unitholders.

Typical Structures

Structures may be tiered, for example 1% within 12 months and nil thereafter, or may permit redemption of a stated proportion of units without load within a year.

Order of redemption. Where an investor has invested at multiple times, units are generally redeemed on a first-in, first-out basis, so the oldest units go first. This matters for both exit load and capital gains computation, and a distributor advising on a partial redemption should consider it.

Exit Load and Systematic Investments

For a systematic investment plan, the exit load period runs from each instalment's own date, not from the date the SIP was registered. An investor who started a SIP two years ago and redeems everything today may face exit load on the instalments made within the last twelve months, while the earlier ones are free of it.

This is a common misunderstanding and is worth explaining before the investor sees the deduction.

Lock-In Is Not Exit Load

An ELSS investor cannot redeem within three years at any price. An equity fund investor can always redeem, paying the load if applicable.

The Additional Expense in Lieu of Exit Load Has Been Removed

Schemes charging an exit load were historically permitted to charge a small additional expense — most recently 5 basis points — over and above the applicable expense ratio, as a transitional measure.

That additional 5 basis point allowance was removed as part of the expense framework revision taking effect from 1 April 2026. Material describing it as available is out of date. The practical effect is a marginal reduction in permitted expenses for schemes carrying an exit load.

GST on Exit Load

Exit load is credited to the scheme net of applicable GST, which is accounted for within the scheme's expense framework.