Mutual fund myths decoded: CA explains how exit load, SIPs impact profitability in 2025

Many retail investors panic at the mention of exit load or doubt the profitability of systematic investment plans (SIPs). But according to CA Nitin Kaushik, these concerns are often misplaced if one invests with discipline and a long-term horizon. 

In a detailed post on X (formerly Twitter), Kaushik broke down the mechanics of mutual funds, exit load, and SIP returns with simple math and real-world examples. 

What is Exit Load? Kaushik explained that exit load is a small fee charged by mutual funds when investors redeem their units before a specific holding period — usually 12 months. “It discourages short-term trading and protects long-term investors,” he wrote. For equity funds, the exit load is typically 1% if redeemed within a year. For example, redeeming ₹10 lakh before one year could mean a ₹10,000 deduction, whereas after a year, the charge drops to zero. 

SIP advantage 

Each SIP installment creates new units with its own 12-month clock. Over time, most units become exit-load-free. “If you redeem after five years, nearly all your SIP investments are unaffected by exit load,” Kaushik highlighted. Early redemptions typically impact only the most recent installments. 

Expense ratio 

Mutual funds charge an expense ratio of around 1-2% annually, but this is already factored into the Net Asset Value (NAV). “Your redemption reflects the true growth after charges — there’s no need to subtract it again,” Kaushik clarified. 

Numbers that speak 

To demonstrate SIP profitability, Kaushik used an example: 

• SIP: ₹1 lakh/month 
• Tenure: 5 years 
• CAGR: 12% 

This would result in a future value of approximately ₹8.14 crore. Importantly, this amount is net of expense ratio, and since most units would be held beyond a year, no exit load applies. 

Stocks vs MFs

Comparing direct stock investments to mutual funds, Kaushik pointed out that dividends in stocks are often spent instead of reinvested, thereby weakening compounding. In contrast, mutual funds (Growth option) automatically reinvest dividends, creating a “hidden SIP” effect that silently builds wealth over time. 

Key takeaways 

• Long-term investing eliminates exit load worries. 
• SIPs combined with MF Growth option maximize compounding. 
• Mutual funds outperform dividend-based stock investing by reinvesting earnings automatically. 
• Even small reinvestments can translate into lakhs of extra wealth over five years. 

“Mutual funds aren’t just for beginners — they quietly maximise compounding, avoid short-term exit pain, and outperform simple stock dividends,” Kaushik concluded.