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nism-series-va-liquid-fund-graded-exit-load-structure[ MUTUAL FUND DISTRIBUTORS ]

Under SEBI regulations, what is the mandatory 'Graded Exit Load' structure applicable on redemptions from Liquid Mutual Fund schemes?

[ A ]A flat 1.00% exit load if redeemed within 30 days.

[ B ]Zero exit load starting from Day 1 minute 1.

[ C ]A flat 0.25% exit load if redeemed within 7 days.

[ D ]A 7-day graded exit load starting at 0.0070% on Day 1, tapering down daily to 0.0045% on Day 6, and becoming exactly ZERO (0.0000%) from Day 7 onwards.[ CORRECT ]

Takeaway

Option D is correct: A 7-day graded exit load starting at 0.0070% on Day 1, tapering down daily to 0.0045% on Day 6, and becoming exactly ZERO (0.0000%) from Day 7 onwards.

Derivation

SEBI mandates a daily-tapering exit load on liquid fund redemptions within the first 7 days, designed to discourage large corporate treasuries from parking cash for a single day purely to capture liquid fund accrual: Day 1 = 0.0070%, Day 2 = 0.0065%, Day 3 = 0.0060%, Day 4 = 0.0055%, Day 5 = 0.0050%, Day 6 = 0.0045%, and from Day 7 onward the exit load is Nil. Before this 2019 mandate, liquid funds carried zero exit load at all, which made them attractive as an overnight parking vehicle for volatile institutional inflows that could trigger sudden large-scale redemptions and destabilize scheme liquidity. The graded structure adds a small but real cost to same-week exits without meaningfully penalizing genuine short-term cash management use.

Why the others fail

A — A flat 1.00% exit load if redeemed within 30 days.

1.00% exit load within 365 days is typical of equity fund structures; liquid funds instead use a much smaller, daily-tapering load confined to the first 7 days only.

B — Zero exit load starting from Day 1 minute 1.

Zero exit load was the historical liquid fund norm before SEBI introduced the mandatory 7-day graded load in 2019 specifically to curb volatile short-term corporate inflows.

C — A flat 0.25% exit load if redeemed within 7 days.

0.25% flat within 7 days is not the actual structure — SEBI prescribes a specific day-by-day tapering schedule running from 0.0070% down to 0.0045%, not one flat rate.