What is an Entry Loads

An entry load is a fee charged by mutual funds at the time of purchase of units by investors. It is usually a percentage of the investment amount and is deducted before the units are allocated, reducing the actual investment amount. The entry load was intended to cover the distribution and marketing costs incurred by the fund house. However, the Securities and Exchange Board of India (SEBI) abolished the practice of imposing entry loads on mutual funds in August 2009, making investments more cost-effective for investors.

Understanding Entry Load in Mutual Funds 

An entry load is a fee charged by mutual funds when an investor purchases units, typically calculated as a percentage of the invested amount. This percentage is added to the Net Asset Value (NAV), thereby increasing the cost of entry for the investor. For example, if an investor intends to buy units worth ₹10,000 and there is a 2% entry load, ₹200 would be deducted as a fee, leaving only ₹9,800 to be invested in the mutual fund. The entry load was traditionally applied to cover expenses related to distribution, marketing, and agent commissions.  

The higher the entry load, the smaller the actual investment amount, which can reduce the potential returns an investor might earn over time. This reduction in the invested capital can particularly affect the growth of the investment, as less money is available to compound and generate returns, ultimately impacting the investor's overall financial goals. 
 

How Does Entry Load Affect Your Investment Returns? 

Entry loads in mutual funds can have a significant impact on your investment returns by reducing the initial amount invested: 
 

• Reduced Investment Amount: The direct effect is that the actual investment is lower due to the entry load. This means the investment starts from a smaller base, limiting potential returns. 
• Delayed Breakeven Point: The time it takes for the investment to recover the deducted entry load delays the breakeven point. During this period, the returns generated are focused on recovering the initial fee rather than generating profit. 
• Impact on Compounding: The entry load reduces the principal amount that benefits from compounding, which is crucial for wealth creation. A lower initial amount means less growth over time, impacting long-term returns. 
• Higher Return Requirement: To compensate for the entry load, investment needs to generate higher returns to meet the financial goals. This adds a challenge to achieving desired returns. 
• Effect on Small Investments: For smaller investments, even a minor entry load can significantly reduce the investment amount, further diminishing potential gains.