The Securities and Exchange Board of India (SEBI) has formalized a graded exit load structure on Liquid Mutual Funds. It has also stated that the load structure will be reviewed annually by AMFI, in consultation with SEBI.
As of now, exit load is not applicable on Liquid mutual fund redemptions.
What is an Exit Load in Mutual Fund? – Mutual funds companies can collect an amount from investors when they join or leave a scheme. This fee charged is generally referred to as a ‘load’. Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme or the company as an investor. (Entry Load has been banned since 2009.)
What are Liquid Mutual Funds? – Liquid funds are a type of Debt mutual funds that invest in securities with a residual maturity of up to 91 days. They invest primarily in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits.
For example : You can notice that Axis Liquid fund has ‘zero’ exit load as on today.
Liquid Mutual Funds New Exit Load Structure
Here is the table on levy of exit load on a graded basis w.e.f 20th Oct 2019;
| Investor exit upon subscription | Exit load as a % of redemption proceeds |
| Day 1 | 0.007 |
| Day 2 | 0.0065 |
| Day 3 | 0.006 |
| Day 4 | 0.0055 |
| Day 5 | 0.005 |
| Day 6 | 0.0045 |
| Day 7 | 0 |
So, fund houses can levy graded exit load on investors of liquid funds, who exit the scheme within 7 days.
SEBI has also set the cut off timing in liquid funds 1.30 pm instead of 2 pm with effect from October 21, 2019.
If you invest before 1:30 pm in a liquid fund, you will be allotted units at the NAV of the previous day. Otherwise, the present day NAV will be considered for your investment.
With this decision on Exit load, we may see some shift of Liquid fund assets under management to Overnight Funds.
The SEBI has also mandated that Liquid Funds should hold 20% of its corpus in Liquid Assets like Cash, Govt Securities & T-bills). This may lead to some drop in yields (returns) from Liquid Funds. However, the new investment norms may help in improving liquidity profile in the liquid/overnight category.
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(Post first published on : 16-Oct-2019)
Hi Sree,
Just wanted to understand what are the floating interest rate funds? Whether these funds has more or less risk compared to liquid/short/low/ultra short duration funds if want to keep money for 2-3 yrs?
Regards,
Abhi
Dear Abhinav,
A floating rate fund is a fund that invests in financial instruments paying a variable or floating interest rate.
Floater funds are debt funds that invest at least 65% of their money in floating-rate bonds. The interest these bonds pay change as the interest rates in the economy change.
Generally, a suitable investment option when the interest rates are poised to go up.
Advisable for long-term investments.
Super
Small correction for NAV. If you invest before cut off time , previous day NAV will be assigned. After cut off time present day NAV
Thank you dear nagasahitya, for letting us know this.. I have corrected the same.
Keep visiting ReLakhs.com!
Hello Sreekanth,
Hope you do no mind me sharing some more information. This will benefit the investors who are – fairly new to MF or unaware of the NAV applicability.
Investment before cut-off time is subject to the time at which money/funds are credited to/realised at the bank account of the respective liquid schemes before the cut-off time.
If the AMC receives the funds BEFORE cut-off time of 1:30 pm, closing NAV of the day immediately preceding the day of receipt of application.
If the AMC receives the funds AFTER cut-off time of 1:30 pm, closing NAV of the day immediately preceding the NEXT BUSINESS day.
I have seen many investors raising issues wrt NAV applicabilty, especially, when the investment date is Friday or the next day happens to be a non-business day and the funds are realised AFTER cut-off.
Sharing an issue i faced. I purchased some units of a liquid fund on a Friday. My account was debited on Friday @ 12 noon but AMC realised/received the funds after cut-off. So, the NAV applied was from Sunday (which was the day immediately preceding the NEXT BUSINESS day i.e., Monday).
2 Lessons –
(1) Even if the investors’ account is debited before cut-off time does not mean that previous day NAV will be applied. Investors should make sure units are purchased more than couple of hours before the cut-off time so as to allow time for realization of funds at the bank account of the respective liquid schemes.
(2) Always refer “Applicability of NAV” section in Scheme Information Document (SID) or Key Information Memorandum (KIM) before transacting in a particular fund.
Hope this helps !
Dear Satish,
Absolutely no issues! I am more than happy to see my blog readers sharing their comments and views, and make this blog more informative.
Thank you for sharing this info!