Entry Load (Abolished) & Exit Load — Impact on Returns
A load is a charge on an investor's transaction in a mutual fund. This lesson covers the abolition of entry load and distributor transaction charges, the stamp duty that still applies to purchases, and how exit load is worked out, capped and used.
What is charged when units are bought
Entry load was once deducted from the amount invested. SEBI abolished it by its circular of 30 June 2009, and no scheme may charge it. The transaction charges of ₹100 or ₹150 that distributors could once collect were abolished by SEBI's circular of 8 August 2025.
This does not mean the whole amount paid is converted into units. Stamp duty of 0.005% applies to purchases, SIP instalments and switch-ins, so units allotted = (amount − stamp duty) ÷ NAV. There is no stamp duty on redemption.
How exit load works
Exit load is charged when units are redeemed within a period set by the scheme; the Scheme Information Document states the load and the period. The repurchase price is NAV × (1 − exit load), so the load is worked out on the redemption value, not on the amount invested.
With a SIP, each instalment is a separate purchase with its own exit-load period. A switch out of a scheme is a redemption, so exit load can apply to it as well.
The limits on exit load
Under the SEBI (Mutual Funds) Regulations, 2026 exit load cannot exceed 3% of NAV. Older material quotes 5%, from the earlier rule that the repurchase price could not be below 95% of NAV. Within the cap each scheme sets its own load and period.
No exit load is charged on bonus units, on units from reinvested IDCW, or on a switch between the regular and direct plans of the same scheme. When a scheme changes a fundamental attribute, unitholders get an exit option at NAV with no exit load for at least 30 calendar days. Liquid funds carry a graded exit load on redemptions within 7 days, on a schedule prescribed by AMFI.
Where the money goes
The exit load collected is credited back to the scheme, net of GST. It does not go to the fund house or the distributor; it stays with the unitholders who remain invested.
Exit load is separate from tax. Redemption of equity-oriented fund units also bears securities transaction tax of 0.001%, and any gain is taxed under the capital gains rules.
Rules at a glance
Each SIP instalment has its own period (illustrative)
Assume a scheme charges exit load on redemptions within one year. Vikram's SIP buys units on the 5th of every month from 5 January 2026, and he redeems all his units on 22 February 2027, after 14 instalments.
The instalments of 5 January 2026 and 5 February 2026 are more than a year old, so they bear no exit load. The 12 instalments from 5 March 2026 to 5 February 2027 are within one year, so the load applies to the units bought with them.
Buying with stamp duty, redeeming with exit load (assumed figures)
- Assume Anita invests ₹1,00,000 at an NAV of ₹25.00. Stamp duty = 0.005% × ₹1,00,000 = ₹5.
- Units allotted = (₹1,00,000 − ₹5) ÷ ₹25.00 = ₹99,995 ÷ ₹25.00 = 3,999.80 units.
- Seven months later the NAV is ₹30.00 and she redeems all her units. The scheme's exit load is 1% on redemptions within one year, so repurchase price = ₹30.00 × (1 − 0.01) = ₹29.70.
- Payout = 3,999.80 × ₹29.70 = ₹1,18,794.06.
- Check: value at NAV = 3,999.80 × ₹30.00 = ₹1,19,994.00; exit load = 1% of that = ₹1,199.94; ₹1,19,994.00 − ₹1,199.94 = ₹1,18,794.06.
Result. She receives ₹1,18,794.06, before securities transaction tax and any tax on the gain. The load of ₹1,199.94 is 1% of the redemption value, not 1% of the ₹1,00,000 invested, and it goes back into the scheme.
Key points
- Entry load was abolished by SEBI's circular of 30 June 2009; no scheme may charge it.
- Stamp duty of 0.005% applies to purchases, SIP instalments and switch-ins: units = (amount − stamp duty) ÷ NAV.
- Distributor transaction charges of ₹100 or ₹150 were abolished by SEBI's circular of 8 August 2025.
- Repurchase price = NAV × (1 − exit load); the load is worked out on the redemption value.
- Exit load cannot exceed 3% of NAV.
- The load collected is credited back to the scheme, net of GST.
Common misunderstandings
- No entry load does not mean the whole amount buys units: stamp duty of 0.005% is deducted first.
- Exit load is not worked out on the amount invested: it is a percentage of the redemption value.
- The cap on exit load is not 5%: it is 3% of NAV, and 5% is the older figure.
Questions people ask
Does every redemption bear an exit load?
No. It applies only to units redeemed within the period the scheme sets, as stated in its Scheme Information Document, and some units are exempt.
Is exit load charged on moving from the regular plan to the direct plan of the same scheme?
No. A switch between the regular and direct plans of the same scheme bears no exit load. Tax on the switch is a separate question.
Who benefits from the exit load collected?
The scheme. The load is credited back to its assets, net of GST, so it stays with the unitholders who remain invested.
What this lesson relies on
- SEBI (Mutual Funds) Regulations, 2026 — Regulation 44(4) (exit load)
- SEBI Master Circular for Mutual Funds (20 March 2026) — provisions on loads and pricing of units
- SEBI circular of 30 June 2009 (abolition of entry load); SEBI circular of 8 August 2025 (abolition of distributor transaction charges)
- Indian Stamp Act, 1899 — stamp duty on mutual fund purchases (from 1 July 2020)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.