A lower exit load may sound like good news for mutual fund investors, but it does not mean that exiting a scheme early has become cost-free.
SEBI’s Annual Report 2025-26 says the maximum permissible exit load that can be charged on mutual fund schemes has been capped at 3%, down from 5%. The report also says that the exit load collected will continue to be credited back to the scheme, with the aim of protecting the remaining unitholders.
But there is another number in the same report that investors should pay attention to. During 2025-26, the number of mutual fund schemes that posted negative annual returns jumped to 731 from 243 a year earlier. At the same time, the number of schemes earning more than 10% fell from 304 to 198.
That means an investor who exits a fund early could face two different pressures: the applicable exit load and a fall in the value of the investment itself.
What has SEBI changed on exit load?
SEBI has capped the maximum permissible exit load at 3%, compared with the earlier ceiling of 5%. The change is part of the investor-centric measures outlined in the SEBI (Mutual Funds) Regulations, 2026.
Importantly, this is a maximum permissible limit, not a statement that every mutual fund scheme will charge 3%.
The report says the exit load collected continues to be credited back to the scheme. In other words, the amount is intended to protect investors who remain in the scheme from the impact of other investors exiting.
For an investor, therefore, the first thing to check before redeeming is the exit-load provision applicable to the particular scheme.
The 3% figure is the regulatory ceiling; the actual charge applicable to an investor depends on the scheme’s provisions.
But the bigger risk is not necessarily the exit load
The cap addresses one specific cost of exiting early. It does not protect an investor from a fall in the value of the mutual fund investment.
SEBI’s data shows why this matters.
The number of schemes with negative annual returns rose sharply from 243 in 2024-25 to 731 in 2025-26. Within this:
| Annual return in 2025-26 | Number of schemes |
| 10% or more | 198 |
| 5% to 10% | 539 |
| 0% to 5% | 373 |
| -5% to 0% | 492 |
| -10% to -5% | 146 |
| -10% or below | 93 |
These figures are for the Direct Plan Growth Option of schemes, as reported by SEBI.
So, while the exit-load ceiling has come down, the underlying investment can still be worth less when an investor decides to redeem.
That distinction is important: the exit load is a charge associated with exiting; it is separate from the market-linked gain or loss on the investment.
The market was more difficult for mutual fund schemes in 2025-26
SEBI describes the return environment during 2025-26 as subdued, driven by market volatility. The number of schemes generating more than 5% returns fell from 1,156 to 737, while those generating more than 10% fell from 304 to 198.
This matters for an investor considering an early exit because the decision is not simply: ‘How much exit load will I pay?’
It is also – ‘At what value am I selling my investment?’
If a fund’s underlying investments have fallen, reducing the exit load does not eliminate that loss.
Mutual fund investors are increasingly putting money into equity
The importance of this becomes clearer when we look at where mutual fund money is going.
At the end of March 2026, mutual fund assets stood at Rs 73.7 lakh crore, up 12.2% from Rs 65.7 lakh crore a year earlier. Open-ended schemes accounted for 99.7% of total net AUM. Equity-oriented schemes recorded net inflows of Rs 3.5 lakh crore during 2025-26.
Among equity-oriented categories, flexi-cap funds attracted Rs 89,213 crore, small-cap funds Rs 51,872 crore, mid-cap funds Rs 51,197 crore and large & mid-cap funds Rs 44,306 crore.
This means the question of exiting at the right time becomes particularly relevant for investors whose investments are exposed to market movements.
Investors are also redeeming more
There is another interesting number in SEBI’s report.
During 2025-26, total gross resource mobilisation by mutual funds increased 14.9%, but liquidations/redemptions rose 16.5%. As a result, overall net inflows declined 9.7% to Rs 7.4 lakh crore.
So, while the mutual fund industry continues to grow, investors are also taking money out at a significant scale.
That makes understanding the cost of exiting important — particularly when an investor is redeeming because of a short-term need or because the market has turned volatile.
SIPs are growing — but there is considerable movement in and out
The same trend can be seen in SIP data.
The number of SIP accounts increased 3.9%, from 10.05 crore to 10.45 crore in 2025-26. But during the year, 7.2 crore new SIPs were registered, while 6.8 crore were either discontinued or reached maturity.
At the same time, SIP money continued to rise.
| SIP metric | 2024-25 | 2025-26 |
| Contributing SIP accounts | 10.05 crore | 10.45 crore |
| AUM through SIPs | ₹13.35 lakh crore | ₹15.11 lakh crore |
| Gross SIP inflows | ₹2.89 lakh crore | ₹3.50 lakh crore |
| Net SIP inflows | ₹1.57 lakh crore | ₹1.97 lakh crore |
| Average monthly net inflow | ₹13,052 crore | ₹16,413 crore |
This creates an important investor question: if an investor starts a SIP but then stops or redeems soon after, what does the exit cost actually mean for the investment outcome?
The report does not provide a breakdown of how many discontinued SIPs involved an exit load, so that conclusion cannot be drawn from the data. But the scale of SIP registrations and discontinuations shows how much investor movement is taking place.
The size of the SIP investment is also changing
SEBI’s data shows that the number of SIP folios in some higher contribution bands increased during 2025-26.
SIP folios with monthly values of:
₹3,001-₹5,000 rose from 1.40 crore to 1.44 crore.
₹5,001-₹10,000 rose from 58.73 lakh to 61.67 lakh.
₹10,001 and above rose from 27.94 lakh to 29.60 lakh.
At the same time, folios in the Rs 501 – Rs 1,000 category declined from 3.20 crore to 3.06 crore.
The data shows that the SIP base is not just getting larger; there are changes taking place in the distribution of SIP contribution sizes as well.
Early exits can matter more in funds where liquidity is under stress
SEBI’s stress-test data adds another layer to the exit question, particularly for mid-cap and small-cap funds.
The stress tests simulate extreme market crashes and examine how many days a fund would need to liquidate 25% and 50% of its portfolio under high redemption pressure. The objective is to assess whether fund managers can meet redemptions without severely affecting the NAV.
In March 2026, the top 10 mid-cap schemes by AUM required an average of 17 days to liquidate 50% of their portfolios, while the top 10 small-cap funds averaged 38 days.
For the top five schemes, the figure increased to 23 days for mid-cap funds and 51 days for small-cap funds. SEBI says this highlights concentration risks in larger funds.
This does not mean an investor has to wait 51 days to get money after redeeming a small-cap fund. The stress test is a measure of portfolio liquidity under an extreme scenario. But it does show why large redemption pressure is an important risk for funds holding less-liquid securities.
For investors, therefore, the cost of exiting is not only about the exit-load percentage. The underlying portfolio, market conditions and the value at which securities can be sold also matter.
The mutual fund market is getting much larger
The exit-load change comes at a time when India’s mutual fund industry has expanded sharply.
SEBI says mutual fund AUM has more than doubled in five years, from ₹31.43 lakh crore in March 2021 to ₹73.7 lakh crore in March 2026. The number of unique investors rose 13.2% in 2025-26 to 6.1 crore.
The growth is also moving beyond large cities. The number of unique investors in Tier-II cities rose 37.6%, from 1 crore to 1.4 crore, while Tier-III cities had 3.39 crore investors in 2025-26.
That makes a basic understanding of exit costs increasingly important as more households enter mutual funds.
So, when can an investor still lose money by exiting early?
SEBI’s report points to three separate things investors need to keep apart.
First, there can be an applicable exit load. The maximum permissible exit load has now been capped at 3%, down from 5%. But the cap is a ceiling; investors need to look at the specific scheme’s applicable terms.
Second, the fund itself can be down. SEBI recorded 731 schemes with negative annual returns in 2025-26, including 93 schemes with returns of -10% or below.
Third, market conditions can influence how easily a fund can liquidate its portfolio under heavy redemption pressure. SEBI’s stress tests show particularly high liquidation periods for the largest mid-cap and small-cap schemes under extreme scenarios.
So the new 3% ceiling should not be read as a guarantee that an investor’s loss on early exit is limited to 3%.
The 3% is the maximum permissible exit load. It is not a cap on the loss in the underlying investment.
What investors should check before redeeming
Based on the issues highlighted in SEBI’s report, an investor considering an early exit should look at:
The scheme’s applicable exit load, rather than assuming the 3% ceiling applies.
The current value of the investment, especially because scheme returns can be negative.
The nature of the fund, particularly where the portfolio may face greater liquidity pressure under extreme redemption scenarios.
Whether the exit is actually necessary, given that the report shows substantial SIP participation and continued long-term participation in mutual funds.
The reason for redeeming — whether it is a genuine cash requirement or a reaction to short-term market volatility.
The larger takeaway from SEBI’s report is that the exit-load cap makes one component of early redemption less punitive. But the bigger financial outcome still depends on what happens to the value of the investment itself.
And in a year when the number of schemes reporting negative returns rose sharply, that distinction matters.
Disclaimer: This article is based on information and data provided in SEBI’s Annual Report 2025-26. Mutual fund investments are subject to market risks, and the applicable exit load and other terms may vary across schemes. Investors should refer to the scheme-related documents before making any investment or redemption decision.
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