An entry load was a fee that fund companies charged when you first invested. They took this fee directly from your investment before buying any fund units for you. The only reason for this fee was to pay salespeople and cover company costs.
This fee had one main job: to pay sellers for bringing in new customers. It also paid for the company’s paperwork and other office work. The charge also stopped people from trading too quickly, which always harms a fund’s performance.
Table of Contents
Understanding Entry Load
Historical Context of Entry Load Charges
All fund companies charged an entry load until August 2009, when the market regulator SEBI correctly banned it. Before this ban, funds charged between 2% and 2.5% of your investment. During the 2006 bull market, some funds charged a shocking 7%, which blocked regular people from investing properly.
Fund companies used this money to pay commissions to sellers and to fund their own ads. This was standard from 2004 to 2007. At that time, companies launched New Fund Offers (NFOs) and pushed investors to switch funds just to earn more fees. This was a bad practice.
How Entry Load Affected Investment Amount
These fees were terrible because they instantly lowered the amount of your money that was invested. For example, if you invested ₹1,00,000 into a fund with a 2.5% entry load, the company took ₹2,500 immediately.
This left only ₹97,500 of your money to buy fund units. This automatically reduced the number of units you owned and damaged your future profits. If one fund unit cost ₹50 (the Net Asset Value or NAV), your ₹1,00,000 should buy 20,000 units. But with the fee, you only got 19,500 units. This loss of 500 units creates huge financial damage.
Entry Load Abolition
SEBI’s decision on August 1, 2009, was a historic moment. They banned all entry loads on every mutual fund. SEBI did this to make investing honest, protect investors, and stop sellers from giving bad advice to earn a commission. This action proves SEBI is on the side of the small investor.
The results were immediate. In the first year, investors saved about ₹1,300 crores. That money stayed in investors’ pockets, where it belongs. This huge amount shows how much money these fees were taking from people.
Entry Load Calculation and Impact Analysis
How is Entry Load Calculated?
Entry Load Formula and Examples
The calculation for the entry load is a simple percentage formula:
Entry Load Amount = Investment Amount × Entry Load Percentage
To illustrate, if you invested ₹50,000 in a fund with a 1% entry load:
- Entry Load Deduction: ₹50,000 × 1% = ₹500
- Actual Investment: ₹50,000 – ₹500 = ₹49,500
For a bigger investment of ₹10,00,000 with a 2.5% entry load:
- Entry Load Deduction: ₹10,00,000 × 2.5% = ₹25,000
- Net Investment: ₹10,00,000 – ₹25,000 = ₹9,75,000
Impact on Investment Returns
These charges guaranteed you lost money on day one. Your investment started with a loss, which is the worst possible strategy. When a company takes part of your money, you have less capital working to make you more money. This small loss grows into a very big problem.
The longer you invest, the more money you lose. That initial fee robs you of future growth and will destroy your wealth compared to a no-load fund.
Entry Load vs No-Load Fund Comparison
Investment Scenarios with Entry Load
Today, almost all funds are no-load funds, thanks to SEBI’s smart 2009 rule change. No-load funds are the best and simplest option. Your entire investment is used to buy fund units, with no fees taken at the start.
This is the only way to make sure all your money works for you from day one. Load funds did the opposite by taking your money before investing it. The difference is massive, and no-load funds are always better.
Long-term Return Differences
The difference in profit between a load and a no-load fund becomes enormous over time.
Imagine you invest ₹1,00,000, and both funds earn 10% a year.
Scenario with 2% Entry Load:
- Initial Investment: ₹98,000 (after they take ₹2,000)
- Annual Return: ₹9,800
- Total Value after 1 year: ₹1,07,800
No-Load Scenario:
- Initial Investment: ₹1,00,000
- Annual Return: ₹10,000
- Total Value after 1 year: ₹1,10,000
After just one year, you have ₹2,200 less in the fund with the fee. This gap grows larger every single year. An entry load is a guaranteed way to make less money.
Current Entry Load Status in India
Exceptions to Entry Load Ban
SEBI’s powerful ban removed entry loads from almost every mutual fund, but a few rare exceptions exist. Some special funds can still charge these fees if they have very high operating costs.
The rule is simple: almost all regular mutual funds have no entry loads. This applies to stock funds, bond funds, and hybrid funds. This change made investing fair and easy, which is the best thing for small investors.
International Funds and Entry Load
Funds that invest in other countries sometimes still have an entry load. This is the main exception. They charge this fee since it is more expensive to manage these funds. Operating in foreign countries simply costs more.
These special funds need more research and must handle different currencies and laws. The extra costs are the reason they can charge this fee.
FAQ
Is entry load still charged on mutual funds today?
No. Entry loads are not charged on most mutual funds since SEBI banned them in 2009. The only exceptions are some special international funds with higher costs.
How did entry load impact mutual fund returns?
These fees destroyed returns. They took your money before it was invested. If you invested ₹1,00,000, a 2% load meant only ₹98,000 was invested, which guaranteed lower profits forever.
Why was entry load abolished?
SEBI banned entry loads for one simple reason: to protect you, the investor. The ban made investing honest, stopped bad advice from sellers, and made sure your money worked for you.
What is the difference between entry load and exit load?
An entry load was a fee you paid when you put money in; it is now banned. An exit load is a fee you pay when you take money out. This fee still exists on some funds to stop people from selling too early and to protect long-term investors.
Do any mutual funds still charge entry load?
Almost no mutual funds charge an entry load. The only ones that might are certain international funds that have much higher operational costs.
