Exit load is a charge levied by a fund house when an investor redeems/sells units fully or partially within a specified time. Exit load is not part of the fund's expense ratio, it is charged on total fund value upon redemption as a percentage. AMCs charge exit load to discourage investors from redeeming early or make frequent entry exits, so that they remain invested for long term.
For example, you hold 2000 units in a scheme that charges an exit load of 1% of you redeem within 365 days from investment date. You redeem at 6 months at the current NAV of Rs 130.
The exit load will be:
Total redemption amount 130*2000 = 2,60,000
Exit Load: 2,60,000*1% = 2600
Total realised value = 2,60,000 - 2600 = Rs 2,57,400
Exit load varies between AMCs and type of fund. For example, equity funds have higher exit loads compared to debt funds, as equity markets are volatile in the short term and investors who stay invested benefit from long term appreciation and compounding.
Exit load details are mentioned in the Scheme Information Document.