8.4 Entry and Exit Load and Its Impact on NAV

NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

8.4 Entry and Exit Load and Its Impact on NAV

Key Takeaways Explain This Topic AI

Entry load has been nil on all mutual fund schemes in India since August 2009.

Exit load is deducted from the redemption proceeds and is credited back to the scheme.

Units are always allotted and redeemed at NAV; load adjusts the amount received, not the NAV.

Exit load structures are commonly tiered by holding period and are disclosed in the SID and KIM.

The additional expense permitted in lieu of exit load was removed with effect from 1 April 2026.

Last updated: August 2026

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

• Scheme type Common exit load
• Liquid and overnight Nil, or a small graded load in the first few days for liquid schemes
• Short-duration debt Nil or very short period
• Equity schemes Around 1% if redeemed within 12 months
• ELSS Nil, but a statutory 3-year lock-in applies
• Life Cycle Funds Graded: 3% in year one, 2% in year two, 1% in year three
• Close-ended schemes Not applicable; no repurchase before maturity

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

• Exit load Lock-in
• Nature A charge on early redemption A prohibition on redemption
• Can the investor exit? Yes, on paying the load No, until the period ends
• Example 1% within 12 months in an equity scheme 3 years in ELSS

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.