Money Basics · SIPs & mutual funds

Exit loads & redeeming

Getting in was easy. Getting out has two costs people discover too late: exit loads and taxes. Plus one behavioural trap that does more damage than both.

Exit load, the early-exit fine

Most equity funds charge 1% of the amount if you redeem within 1 year of buying (liquid/overnight funds: nil or days-long). It exists to discourage hot money. Check the fund page, it's always disclosed.

> SIP subtlety: each monthly instalment has its OWN 1-year clock. Redeem a 14-month-old SIP fully and your last 12 instalments eat the load. Funds redeem first-in-first-out, so partial redemptions pull your oldest (load-free) units first.

How redemption actually works

Tap redeem → money hits your bank in T+2 to T+3 working days (equity funds). Not instant. Plan around it. (Some liquid funds offer ₹50k instant redemption.)

Taxes on the way out (equity funds)

1. Held over 1 year → LTCG: 12.5% on gains above ₹1.25 lakh/year

2. Held under 1 year → STCG: 20% on gains

Holding past the 1-year line often saves both the load AND the higher tax rate. (Full details in the Taxes module.)

The real danger isn't the fees

It's redeeming in a panic. Markets fall 20-30% every few years, that's the ride, not the crash landing. Selling in the fall converts a temporary drawdown into a permanent loss, plus load, plus tax. The pattern in past Indian drawdowns has been that investors who continued the SIP through the fall, buying cheap units, came out ahead of those who stopped. Past drawdowns are not a promise about the next one.

1% + higher taxthe price of impatience under 1 year

'do nothing'the response that has held up best across past Indian drawdowns

Takeaway. Equity funds charge ~1% exit load under 1 year, and each SIP instalment has its own clock. The bigger cost is panic-selling a dip. Keep the SIP running and do nothing.