Some Asset Management Companies (AMCs) have sale charges or also known as loads, on the funds that investors are willing to invest upon. There are funds that are purchased with no sales charge and these are called no-load funds.
As an investor, it is very important to know what are the charges involved in investing in mutual funds. When your money is handled by a team of experts - stocks are bought and sold on your behalf, periodical communication is sent on investments, charges are given to the intermediaries etc and all these expenses come with a cost. So, to understand it better let's see what it is.
Entry loads are charges that are calculated as a percentage of the net asset value. That is, assuming that the NAV is 10 rupees and the entry load is 1% then the per unit price will be 10.1 rupees. In simple words, the entry load gets added to the NAV during allotment of units. These loads are applicable at the time of investments. At present mutual funds in India do not charge entry load.
On the contrary Exit loads are charges that are applied at the time when the investor wishes to withdraw an investment within a specific period from that fund. This is also in the form of percentage and this percentage is deducted from the NAV at the time of withdrawal or redemption. For instance, if the withdrawal done by an investor is 10 units and it has the value of 10 rupees each. The exit load specified is 1%. This will make the selling price per unit to be 9.9 rupees. That is the investor will receive 99 rupees that is 9.9 X 10 rupees in units.