What costs does one incur while redeeming Mutual Fund units?

Open-ended Mutual funds allow investors to free-of-charge redeem their units after a set length of time. An exit load is imposed on an investor who intends to redeem his or her units before the end of the specified time. If investors sell their mutual fund investments before completing a set period of time in the fund, they will be charged an exit load. This is intended to deter short-term investors from investing in funds that require a long-term holding period. Exit loads are frequently not present in liquid funds.

If units are redeemed before the specified time in the Scheme Information Document, exit loads are paid as a percentage of the NAV. If an investment is redeemed before one year, say a scheme has a 1% exit load. If the scheme's NAV is INR 100 and you redeem your investment before a year, you will only receive INR 99 per unit of your holding since the fund house will remove 1% for premature redemption.

You may also be subject to capital gains tax, which is determined by the type of investment you made and the length of time you held the investment, i.e. short-term or long-term capital gains tax. STT applies to equity-oriented recreational transactions as well (Securities Transaction Tax). You pay STT each time you purchase or sell units from these funds, which adds up to the total cost of your transaction.