Diabetes is the most prevalent disease that affects the retina and leads to blindness without any symptoms. An adverse change in retinal blood vessels that leads to vision loss is called as Diabetic Retinopathy (DR). DR is one among the leading causes of blindness worldwide. There is an increasing interest to design the medical system for screening and diagnosis of DR. Segmentation of exudates is essential for diagnostic purpose. In this regard, Optic Disc (OD) center is detected by template matching technique and then it is masked to avoid misclassification in the results of exudates detection. In this paper, we proposed a novel K-Means nearest neighbor algorithm, combining K-means with morphology and Fuzzy to segment exudates. The main advantage of the proposed approach is that it does not depend upon manually selected parameters. Performances of these algorithms are compared with existing algorithms like Fuzzy C means (FCM) and Spatially Weighted Fuzzy C Means (SWFCM). These different segmentation algorithms are applied to publically available STARE data set and it is found that mean sensitivity, specificity and accuracy values for the fuzzy algorithm is 91%, 94% and 93% respectively and considerably higher than other algorithms.