Entry Load vs Exit Load in Mutual Funds - What NRIs Need to Know

A reader from our WhatsApp community recently asked: "I redeemed my SIP after 11 months and lost ₹4,200 to exit load. Why didn't anyone warn me?"

This happens more often than you'd think. Many NRIs invest in mutual funds but don't fully understand the fee structure. Entry load sounds familiar from old conversations. Exit load gets ignored until it bites.

At Belong, we've seen investors lose thousands simply because they didn't check the fine print. This guide covers everything about mutual fund loads, what's abolished, what still applies, and how to plan your redemptions smartly.

Entry Load: The Fee That No Longer Exists

Entry load was a fee charged when you invested in a mutual fund. If a fund had 2.5% entry load and you invested ₹10 lakh, only ₹9.75 lakh actually went into buying units. The rest paid distributors and marketing costs.

SEBI abolished entry loads on August 1, 2009.

The regulator found that entry loads reduced investor returns without adding proportional value. By removing them, SEBI ensured 100% of your investment goes toward buying units from day one. (Source: Business Standard)

Why does this matter for you? If someone mentions entry load in 2025, they're either referring to historical context or confusing it with other fees. No mutual fund in India can charge entry load today. Your entire investment amount buys units at the applicable NAV.

👉 Tip: If any distributor or platform mentions entry load or "processing fee" for buying mutual funds, that's a red flag. Report it to SEBI.

Exit Load: The Fee That Still Applies

Exit load is a fee charged when you redeem (sell) mutual fund units before a specified holding period. It's calculated as a percentage of your redemption amount.

Purpose of exit loads: Fund managers pool money from thousands of investors. When someone exits early, the fund may need to sell holdings at unfavorable prices, hurting remaining investors. Exit loads discourage short-term trading and compensate the fund for redemption costs.

How it works: If you redeem ₹1,00,000 from a fund with 1% exit load and haven't completed the required holding period, you'll receive ₹99,000. The ₹1,000 goes back to the fund scheme, not to the AMC's profits.

Recent SEBI update (September 2025): SEBI reduced the maximum permissible exit load from 5% to 3%. Most funds charge 1-2%, so this cap provides additional protection against excessive fees. (Source: Business Today)

How Exit Load is Calculated

Exit load applies to your redemption value, not your original investment. This is important because if your investment has grown, the exit load amount will be higher.

Formula: Exit Load = Exit Load Percentage × Redemption Amount

Example: You invested ₹5,00,000 in an equity fund. After 10 months, your investment has grown to ₹5,50,000. You decide to redeem everything.

Exit load: 1% × ₹5,50,000 = ₹5,500 Amount received: ₹5,50,000 - ₹5,500 = ₹5,44,500

If you had waited two more months (completing 12 months), you'd receive the full ₹5,50,000.

The SIP Complication: For SIPs, each installment is treated as a separate investment with its own exit load clock. This catches many investors off guard.

Example: You run a monthly SIP of ₹25,000 for 12 months (total: ₹3,00,000). If you redeem everything after 12 months:

• First installment (month 1): 12+ months old - No exit load
• Second installment (month 2): 11 months old - Exit load applies
• Third installment (month 3): 10 months old - Exit load applies
• And so on…

Only your first installment escapes the exit load. The remaining 11 installments still attract charges.

👉 Tip: If you need to redeem early from a SIP, use the "First In First Out" (FIFO) method. Redeem only the oldest units that have crossed the exit load period.

Exit Loads by Fund Category

Different fund types have different exit load structures. Here's a comprehensive breakdown:

(Source: Zerodha Fund House)

Equity Funds: Most equity funds charge 1% exit load if you redeem within 12 months. Some aggressive funds charge for 15-18 months. Always check the scheme information document (SID).

Debt Funds: Exit loads vary significantly. Short-duration funds may have 0.25% for 30 days. Corporate bond funds might charge 0.5% for 6 months. Credit risk funds often have higher loads for longer periods.

Liquid Funds: SEBI mandates a graded exit load structure for redemptions within 7 days:

(Source: Kotak Mutual Fund)

ELSS Funds: No exit load, but a mandatory 3-year lock-in applies for tax benefits under Section 80C. You simply cannot redeem before 3 years.

Index Funds: Many index funds have zero exit load since they're designed for long-term, low-cost investing. Verify with specific fund documents.

Why Switching Funds Triggers Exit Load

Many investors think "switching" between funds within the same AMC is different from redemption. It's not.

When you switch from Fund A to Fund B, the transaction is processed as:

1. Redemption from Fund A (exit load applies if within the specified period)
2. Fresh purchase in Fund B

Example: You have ₹5 lakh in HDFC Equity Fund (8 months old). You want to switch to HDFC Balanced Advantage Fund.

Exit load on HDFC Equity Fund: 1% (since it's under 12 months) Charge: ₹5,000

The new investment in Balanced Advantage Fund starts fresh, with its own 12-month exit load clock.

👉 Tip: If you want to switch funds, wait until the exit load period expires. A few weeks of patience can save significant money.

How Exit Load Affects Your Returns

Let's quantify the real impact with a detailed example.

Scenario 1: Redeem at 11 months Investment: ₹10,00,000 Fund return: 15% (absolute) Value at redemption: ₹11,50,000 Exit load (1%): ₹11,500 Amount received: ₹11,38,500 Effective return: 13.85%

Scenario 2: Redeem at 13 months Investment: ₹10,00,000 Fund return: 17% (assuming similar monthly growth) Value at redemption: ₹11,70,000 Exit load: ₹0 Amount received: ₹11,70,000 Effective return: 17%

The extra two months didn't just avoid the ₹11,500 fee. It also captured additional returns, creating a double benefit.

For NRI investors, this becomes even more important because TDS (Tax Deducted at Source) applies on top of exit loads. Your actual take-home can be significantly lower if you don't plan redemptions carefully.

Direct Plans vs Regular Plans: Same Exit Load

A common question we get: "Do direct plans have lower exit loads?"

No. Exit load is the same for both direct and regular plans of the same scheme. The difference lies in expense ratios, not exit loads.

Choose direct plans to save on ongoing costs. But exit load rules apply equally to both.

For more on direct vs regular plan decisions, see our mutual fund investment guide.

Strategies to Avoid or Minimize Exit Load

Here are practical approaches we recommend to our community members:

1. Hold Beyond the Exit Load Period The simplest strategy. If a fund has 1% exit load for 12 months, plan to hold for at least 12 months. Only invest money you won't need soon.

2. Stagger Your Redemptions Instead of redeeming everything at once, withdraw in tranches. Redeem only units that have crossed the exit load threshold.

Example: You have a 24-month SIP. After 15 months, you need ₹1,50,000.

• Redeem units from months 1-3 (all over 12 months old) - No exit load
• Leave newer units invested

3. Use Systematic Withdrawal Plans (SWP) Instead of lump sum redemption, set up an SWP. Each withdrawal takes from the oldest units first, minimizing exit load exposure.

4. Choose No-Load Funds for Short-Term Goals For money you might need within a year, consider:

• Liquid funds (exit load only for 7 days)
• Overnight funds (no exit load)
• Index funds (many have zero exit load)

5. Use Systematic Transfer Plans (STP) Carefully When moving money between funds via STP, each transfer is a redemption from the source fund. If the source fund has exit load and your units are new, you'll pay exit load on every transfer.

Better approach: Move to a liquid fund first, wait for exit load period to pass, then STP to the target fund.

👉 Tip: Before any redemption, check your statement for unit-wise purchase dates. Most fund platforms show which units attract exit load.

Exit Load and Tax: Understanding the Interaction

Exit load is deducted from your redemption proceeds before you receive money. But how does it interact with taxation?

Key point: Exit load is NOT separately tax-deductible. It simply reduces your sale proceeds, which in turn reduces your capital gain.

Example: Purchase cost: ₹5,00,000 Redemption value (before exit load): ₹6,00,000 Exit load (1%): ₹6,000 Amount received: ₹5,94,000

Capital gain calculation: ₹5,94,000 - ₹5,00,000 = ₹94,000

If this is LTCG (Long-Term Capital Gain), tax applies on ₹94,000, not on ₹1,00,000.

So while exit load hurts your returns, it slightly reduces your tax liability by lowering the capital gain figure.

For complete NRI taxation guidance, see our mutual fund taxation guide.

NRI-Specific Considerations

As an NRI investing from abroad, you face additional layers beyond exit load:

1. TDS on Redemption AMCs deduct TDS (Tax Deducted at Source) on your capital gains at the time of redemption. This is separate from exit load.

2. Currency Conversion Timing Exit load is in INR. When you repatriate, you also face currency conversion. If the rupee has weakened since your investment, your USD/AED returns reduce further.

3. Repatriation Rules If you invested through NRE account, both principal and gains are fully repatriable. For NRO accounts, there are annual limits. Exit load and TDS reduce the final repatriable amount.

4. Documentation for Tax Credits Keep all redemption statements showing exit load deduction. Some countries allow foreign tax credits, and proper documentation helps.

For NRI-specific account guidance, see our NRE vs NRO comparison.

Funds with Zero or Low Exit Load

If minimizing exit load is a priority, consider these fund categories:

Zero Exit Load:

• Most index funds (Nifty 50, Sensex index funds)
• Overnight funds
• ELSS after 3-year lock-in
• Some target maturity funds

Very Low Exit Load:

• Liquid funds (only for 7 days, graded)
• Arbitrage funds (0.25% for 15-30 days)
• Some banking & PSU debt funds

Important caveat: Zero exit load doesn't mean best fund. An equity fund with 1% exit load might deliver far better long-term returns than a liquid fund with zero exit load. Match fund type to your investment goal, not just fee structure.

Compare funds using our NRI FD Comparison Tool for fixed income alternatives or Mutual Funds Explorer for equity options.

How to Check Exit Load Before Investing

Never invest without checking exit load terms. Here's where to find this information:

1. Scheme Information Document (SID) The official document filed with SEBI. Look for "Load Structure" section. Available on AMC websites.

2. Key Information Memorandum (KIM) A shorter version of SID. Contains exit load details in a summary format.

3. AMC Website Most AMCs display exit load on individual scheme pages. Look for "Load" or "Exit Load" tabs.

4. Investment Platforms Platforms like Groww, Coin, and fund aggregators show exit load on scheme pages. Always verify with official AMC sources.

5. Monthly Factsheet AMCs publish monthly factsheets with current exit load terms. Useful for confirming recent changes.

👉 Tip: Exit load terms can change. AMCs must notify investors, but changes apply to new purchases. Check the date of the document you're reading.

Common Exit Load Mistakes

We've seen these errors repeatedly in our community:

Mistake 1: Assuming all equity funds have 12-month exit load Some equity funds have 18-month or even 24-month exit load periods. Thematic and sectoral funds often have longer periods.

Mistake 2: Ignoring SIP date tracking Each SIP installment has its own exit load clock. Redeeming "after 12 months" doesn't mean all units are exit load free.

Mistake 3: Not accounting for switches Switching between schemes triggers exit load. It's not a free operation.

Mistake 4: Confusing lock-in with exit load ELSS has a 3-year lock-in but often zero exit load after that. Close-ended funds have mandatory lock-ins. These are different concepts.

Mistake 5: Making emergency redemptions without checking In a rush, investors redeem without checking which units attract exit load. A few hours of planning can save significant money.

The GIFT City Alternative

Here's something worth knowing before finalizing your mutual fund strategy.

GIFT City mutual funds operate under IFSCA regulations, not SEBI. While exit loads may still apply depending on the specific fund, the bigger benefit is:

Zero capital gains tax for NRIs.

Even if you pay exit load, you save significantly on the 12.5-20% capital gains tax that applies to regular Indian mutual funds.

Through Belong, you can access GIFT City funds with:

• No capital gains tax
• USD denomination (no currency risk)
• Simplified documentation
• Minimum investment of $500

Explore options like DSP Global Equity Fund or Tata India Dynamic Equity Fund.

For a complete comparison, see our GIFT City vs Regular Mutual Funds guide.

Entry Load vs Exit Load: Summary Comparison

Our Recommendation

For most NRI investors, exit load should influence timing, not fund selection.

Choose the best fund for your goal. Then plan to hold it beyond the exit load period. A 1% exit load on a fund that delivers 15% annual returns is far better than zero exit load on a fund delivering 7%.

For short-term money (under 1 year): Use liquid funds, overnight funds, or NRI fixed deposits where exit load is minimal or non-existent.

For medium to long-term goals (3+ years): Exit load becomes irrelevant if you stay invested. Focus on fund quality, expense ratio, and tax efficiency.

For systematic investors (SIP): Continue SIP for at least 12-15 months beyond your intended investment period. This ensures most installments cross the exit load threshold before you need to redeem.

For personalized guidance, explore our safe investments guide.

Have questions about exit loads on specific funds? Join our WhatsApp community where NRIs discuss investment strategies and share experiences: Join Here

Ready to invest in tax-efficient funds? Download the Belong app: Download Belong

Sources: SEBI, Business Standard, Business Today, Kotak Mutual Fund, Zerodha Fund House, Bajaj Finserv