InvestorQ : What are exit load and capital gain in a mutual fund?
ramya Bhaskaran made post

What are exit load and capital gain in a mutual fund?

Isha Tharwani answered.
2 years ago
When you invest in a mutual fund, there is generally a lock-in period of 1 year. However, this depends upon mutual funds (Asset Management companies), some may have a lock-in of the higher or lower period. This especially applies when you invest through SIP. So, when you invest in a particular fund and redeem it before the expiry of the lock-in period, the asset management company will charge an exit load on your redemption value. This could be between 1-3% but depends upon fund house to fund house.

If you invest in mutual funds through a SIP of Rs 10000 (1000 units at Rs 10 each) per month, and after 9 months you redeem it. The NAV on the date of redemption is Rs 12. So, your redemption value will be = 1000*12 = Rs 12000. There is an exit load of 1%. So, it will be = 12000*1% = Rs 120
Hence, net amount you will receive = 12000 – 120 = Rs 11880

Capital gain is the difference between redemption value and initial investment value. It could be either a short-term capital gain or long-term capital gain. For example, Your initial investment in a fund was Rs 1,00,000, and you sold it for Rs 1,25,000 after 2 years. In this case, capital gain will be = 1,25,000 – 1,00,000 = Rs 25,000 and shall be classified as long-term or short-term accordingly.

If the investment is in equity funds, any gain on sale of such investment shall be termed as long-term capital gain if sold after one year, otherwise, it shall be short-term capital gain and will be taxed accordingly.
However, if the investment is in debt funds, and if they are sold within 3 years, any gain thereon shall be treated as short-term capital gain otherwise it will be classified as a long-term capital gain. These gains shall be taxable as per the prescribed rates.