What It Means
An exit load is a fee, expressed as a percentage of your redemption amount, that a mutual fund charges if you sell your units before a defined holding period has passed. It exists to discourage short-term in-and-out trading of a fund meant for longer-term investors.
How It Works
A common structure for equity and hybrid funds is a 1% exit load if you redeem within one year of investing, and nothing after that. Liquid and overnight funds work differently: their exit loads, where they apply at all, are graded over the first few days (often the first week) rather than a full year, since these funds are meant to be held for very short periods anyway. The exit load is deducted directly from your redemption proceeds at the time you sell, calculated on the redemption value, not your original investment amount.
Example
Redeeming ₹1,00,000 worth of an equity fund's units after 7 months, against a 1% exit load for redemptions within a year, costs ₹1,000, leaving ₹99,000 credited to your bank account.