The fee paid on the selling or purchase of a mutual fund is referred to as a “load.” The fee is used to compensate the sales intermediary, such as a financial planner, broker, or investment advisor. The load is a way of compensating a sales intermediary for their time and experience in selecting the best fund for the investor.
Loads can be found in a variety of mutual funds, including sales loads or fees on fund purchases, as well as funds that are sold before a certain amount of time after purchase.
One of the costs associated with MF investments is the entry and exit load. Entry load refers to mutual funds that require you to pay a load when you buy them, while exit load refers to funds that require you to pay a load when you sell them.
It’s important to remember to compare the mutual fund’s goals and risk, as well as internal fees and sales loads when searching for an appropriate mutual fund for yourself.
Mutual fund organizations charge a variety of administrative, operational, and distribution expenses in addition to costs associated with mutual fund issuance, which are generally passed on to investors in the form of loads. Simply put, it is the fee that Asset Management companies (AMCs) charge for investing in mutual fund schemes.
What is Entry Load?
When investors are joining and leaving a scheme, mutual fund companies collect an amount from investors. This fee is usually called “load.” The load of entry can be considered the amount of the fee charged by an investor in the scheme or in the capacity of an investor.
In simple words, entry charges are collected to cover the company’s distribution costs. Every mutual fund house charge different fee as an entry load.
The fee charged on the purchase of a mutual fund scheme is known as the entry load. The imposition of an entrance fee lowers the amount of money invested by investors. A mutual fund scheme with a 5% entry-load, for example, will subtract the entry-load from the total sum invested and invest the remainder. In addition, investors buy mutual fund schemes at the NAV or the Net Asset Value plus the entry load.
The percentages of entry load charges vary depending on the scheme. As a result, if you have set aside INR 20,000 to invest in a program with a 5% entry fee, your investment sum will be reduced to INR 19,500.
The excellent news for Indian investors is that the Securities and Exchange Board of India (SEBI) has imposed a “no entry load” provision on mutual funds as of August 1, 2009. This ensures that your whole investment will be made, with no deductions.
What is an Exit Load?
Mutual Funds are those funds that have a pool of investments drawn from various investors having the same investment objectives. However, if a person or fund manager wants to manage these funds alone for the investors then it is quite difficult for him or her to do so; here the AMCs (Asset Management Companies) come into the scene. These AMCs manage the investors’ funded fund and ensures the investments move in the growth direction. Whenever an investor exits or redeems the unit of a fund then a small number of fees charged to them by the AMCs. The above fee is called the Exit load.
In short, the exit load is a fee charged to the investor by the AMCs (asset Management Companies) when the mutual fund units are recovered or exited.
If an investor wants to exit or redeem his or her mutual fund assets before the end of the specified duration, an exit load is imposed as a percentage. As a result, when an investor withdraws from a mutual fund scheme, the return earned on the investment is decreased as the percentage of exit load is deducted from the NAV. In addition, the percentage of exit-load varies by the scheme. This exit load is held by the asset management firm and does not become part of the scheme’s corpus.
Entry Load vs. Exit Load:
The main distinction is that one is imposed at the time of entry or purchase of a mutual fund scheme, while the other is imposed at the point of sale of a mutual fund scheme.
Read Next: “What is Exit Load?”
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