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Mutual funds come in various types, classified based on risk, returns, sectors, and even the fees they charge. Each type follows a unique investment process and fee structure.

In this blog, we will understand load vs. no-load mutual funds, their impact on investments, and how to choose the right one for your financial goals.

Understanding Load in Mutual Funds
 

Before diving into load and no-load funds, let’s understand the concepts of entry load and exit load.
 

What is Load?
 

In simple terms, a load is a fee or charge that a mutual fund company imposes on investors when they buy or sell fund units.

• Entry Load: This was a fee charged when investors purchased units of a mutual fund. However, as per SEBI regulations, entry loads have been abolished in India since 2009.

• Exit Load: This is a charge applied when you redeem or sell your mutual fund units. It is usually levied if you exit the fund within a specific period, discouraging early withdrawals. The percentage varies depending on the mutual fund’s policy.

 Therefore, when we study load and no-load funds today, we only consider exit load.

What is a Load Mutual Fund?
 

A fund in which an exit load is charged is called a load fund.

Important Features of Load Funds:

1. Exit load is generally charged in the range of 0.5% to 2%.

   • Example: If you invested ₹1,00,000 in a fund with a 1% exit load, then on selling, you would pay ₹1,000 as exit load.

2. The main purpose of imposing an exit load is to discourage short-term trading in mutual funds.

3. After the lock-in period of a mutual fund, some companies stop charging an exit load, while others may still charge a small fee.

4. In equity funds, exit load is generally 1% if redeemed within 1 year.
   In debt funds, exit load is charged if you redeem units within 7 to 30 days.

What is a No-Load Mutual Fund?
 

Mutual funds that do not charge any kind of entry load or exit load are called no-load mutual funds.

Important Features of No-Load Funds:

1. No-load funds do not charge any kind of entry load or exit load.

2. They may still charge fees through the expense ratio.

3. They are a good option for investors who prefer short-term investments.

4. In India, index funds and liquid funds are generally known as no-load funds.

Advantages of No-Load Funds

1. Since there is no entry or exit load, the entire investment amount is deployed into the fund portfolio, saving additional expenses.

2. No fees mean higher liquidity for investors.

3. The overall fees are lower compared to load funds, which can improve total returns.

Conclusion:
 

Every investor should make investment decisions based on their needs, financial goals, and risk capacity.

• If you are investing for the long term, a load fund can be beneficial since these are actively managed by professional fund managers and follow disciplined investment strategies that may yield better returns.

• If your goal is to earn quick returns through short-term investments, a no-load fund might be a better choice since no additional charges are deducted, allowing you to maximize returns without worrying about entry or exit fees.

👉 Ultimately, knowing your investment horizon and financial objectives will help you decide which type of mutual fund is best for you.
 

Frequently Asked Questions (FAQs)

1. What is the main difference between a load and a no-load fund?

A load fund charges an exit load when you sell your mutual fund units, whereas a no-load fund does not have any such charge.
 

2. Which fund is better for long-term investment?

Load funds are considered better for long-term investments because they are actively managed by fund managers and benefit from the power of compounding.
 

3. How much exit load is charged in a load fund?

The exit load varies depending on the mutual fund type and redemption period. In India, it generally ranges between 0.5% to 1% if redeemed within a specific timeframe.
 

4. What are the other major fees and taxes in load and no-load funds?

Apart from exit load, investors should also consider:

• Expense Ratio (fund management fee)

• Securities Transaction Tax (STT)

• Short-Term Capital Gains Tax (STCG)

• Long-Term Capital Gains Tax (LTCG)

5. How does the exit load impact overall mutual fund returns?

If you sell your mutual fund units before the lock-in period, an exit load of up to 1% may be applied, reducing your overall returns. If redeemed after the lock-in period, the impact is minimal but can still affect final returns.