To better understand zero exit load funds, knowing what an exit load is and why it is levied is crucial. Suppose you are a mutual fund investor who wishes to redeem your investments before a certain period (generally the mandatory lock-in period), and you do not stop there but make multiple withdrawals. To protect the interests of the rest of the scheme investors, a predefined exit load fee is charged to discourage you from withdrawing too soon or too often.
Understanding zero exit load funds
Now that we’ve discussed exit load on MFs and their purpose, it will become easier to understand zero exit load funds. These are simply funds wherein no fee is charged when redeeming your investments, especially not within the mandatory lock-in period. You can sell such MF units any time you want, and the money will be in your bank account the very next day.
Usually, the most liquid funds carry no exit loads with them. For instance – debt funds, particularly those with an ultra-short duration, are, by far, the most liquid and hence, do not charge an exit load. However, there may be exceptions.
Equity funds are almost always exit load funds; however, some large-cap or multi-cap funds may carry zero exit load. And as for SIP, the exit load depends on the holding period of each instalment as every investment is treated as a fresh purchase.
Why invest in zero exit load funds
Perhaps the most important benefit you gain from investing in zero exit load funds has to do with your returns. Even a seemingly negligible 1% of exit load will make a painfully noticeable difference at the time of premature redemption. What’s worse is that the amount you lose will increase with an increase in returns. And let’s not talk about making multiple such withdrawals. Investors invest in zero exit load funds to avoid such profit erosion.
Does exit load affect fund performance in any way?
Many first-time investors fall for the trap of believing that zero exit load funds do not perform as well as those carrying an exit load. The truth is that the exit load has got nothing to do with fund performance. If your fund’s underlying securities are performing well, economic changes and government policies are in favour of the sector you’re invested in, and the cash flow is positive, you will earn high returns, even on zero exit-load funds.
Some popular zero exit load funds to invest in
Given below are some of the most high-performing zero exit load mutual funds online for you to start investing today –
• Aditya Birla Sun Life Liquid Fund
• Baroda Liquid Fund
• BNP Paribas Liquid Fund
• Axis Liquid Fund
• SBI Magnum Multi-Cap Fund
• SBI Nifty Index Fund
• HDFC Index Nifty Fund
You must certainly want to compare between zero exit load funds before you build your portfolio. This can easily be done by using many investment apps like the moneyfy app. Browse through fund features, assess fund performance, and allocate your investments based on your risk profile, investment goals, and other requirements. Start investing today!