Sibling Bonds Strengthened as Neelu Explains Mutual Fund Exit Loads to Anubhav
Learning about exit loads of mutual funds through analogy
Once upon a time, there were two siblings named Neelu and Anubhav. Neelu had a keen interest in finance and investments, and she had been investing in mutual funds for quite some time now. On the other hand, Anubhav was relatively new to the world of investing, and he often turned to Neelu for guidance.
One day, Anubhav came to Neelu with a question about mutual funds. He had heard the term â exit loadâ but didnât understand what it meant. Neelu was happy to explain it to him and decided to use an analogy to make it easier for Anubhav to understand.
âAnubhav, think of mutual funds as a bus, and each investor is a passenger on that bus. When you invest in a mutual fund, you are essentially buying a ticket to board that bus. The fund manager drives the bus and takes you to your destination, which is your investment goal.â
Anubhav nodded, understanding the analogy so far.
âNow, imagine that you want to get off the bus before it reaches the destination. This is what we call redemption. But, if you get off the bus too soon, you will have to pay an additional fee, which is called the exit load. This fee is like a penalty for getting off the bus early, and it goes to the fund manager.â
Anubhavâs face scrunched up in confusion. âWhy would they charge me extra for leaving the fund early? That doesnât seem fair.â
Neelu smiled patiently. âWell, think about it this way. Mutual funds are designed to be long-term investments. The fund manager invests your money in various stocks and bonds, and it takes time for these investments to grow and generate returns. If you pull your money out too soon, the fund manager may have to sell some of these investments before they have had a chance to grow. This can disrupt the balance of the fund and cause losses for other investors.â
Anubhav nodded in understanding. âSo, the exit load is like a way to discourage investors from leaving the fund too soon and protect the other investors.â
âExactly!â Neelu exclaimed. âBut, itâs important to note that not all mutual funds have exit loads. Some funds may have a shorter holding period, while others may waive the fee altogether if you hold your investment for a certain amount of time. You should always read the fundâs prospectus carefully to understand the exit load policy and any other fees associated with the fund.â
Anubhav thanked Neelu for the helpful explanation and promised to read up more on mutual funds before making any investments. Neelu was pleased to have helped her brother understand the concept of exit loads and felt proud to have passed on her knowledge to the next generation of investors.
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Originally published on https://www.linkedin.com/pulse/sibling-bonds-strengthened-neelu-explains-mutual-fund-priyanka-nath