12 Commonly used Mutual Fund Terms | Easy Understand

Mutual Fund Terms – Friends, investing in mutual funds can be one of the best choices as it gives you the flexibility to invest in different types of funds and assets. Expert fund managers manage mutual funds that help investors achieve their financial goals. But if you are a beginner investor, then you should be aware of some basic and important terms before investing. So in this article, we will discuss the important mutual fund terms.

Mutual Fund Terms

Mutual funds are a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. Mutual funds are offered by both mutual fund companies and banks. Let’s Know some commonly used mutual fund terms which are used:

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1. AMC (Asset Management Company)

If you invest in mutual funds, then you must have heard about your AMC. An asset management company is an institution that manages the funds of investors. All AMCs have to register with SEBI and operate according to the guidelines of SEBI. AMC releases various funds to meet the objectives of the investors, they are responsible for managing your funds. They collect money from different investors and invest it in funds. Investors put money in these AMCs in mutual fund schemes that match the risk appetite of the investors. According to the goal of the investor and also considering the investment period of the investor and they monitor the funds and distribute the returns according to them.

2. NAV (Net Asset Value)

Net asset value is also a commonly used term. If we understood it in simple language, then NAV is called the price of the mutual fund. As is the share price of the stocks, in the same way, there is the NAV of the mutual fund. So suppose if you buy 100 units of mutual funds then you have to pay it at its NAV price. What is the importance of NAV that it indicates the performance of Mutual Funds? By tracking the NAV, you can get an idea of ​​the performance of mutual funds.

3. Mutual Fund Portfolio

The portfolio shows all the investments made by Mutual Fund Schemes. For example, 60% of your investment is invested in equities, 30% in debt instruments, and the remaining 10% in any other asset class, this is all the information you get from your Mutual Funds portfolio. Generally, this gives you an idea of ​​which asset class your money is invested in.

Mutual Fund Terms

4. SIP (Systematic Investment Plan)

SIP is the most common term used in Mutual Funds. SIP is a method of investing in Mutual Funds in which you invest a small amount but you do it on a regular basis on a weekly, monthly, or quarterly basis. This is one of the best options for Individuals in which they can gradually achieve their financial goals by investing monthly on a fixed income regular basis as per their financial goals and capacity. You can invest in SIP in the amount of 500 rupees per month. Another interesting feature of SIP is that if you can link your investment account with the bank account, then you will continue to invest from your account on a monthly basis.

5. Expense Ratio

The expense ratio is called the fee that mutual fund schemes charge for managing your money in your life. This includes the entire cost of running from the fund manager to the fund administration. A low expense ratio means high profit for the investors and a high expense ratio means low profit for the investors. Generally, the expense ratio of an active mutual fund ranges between 1.5% to 2.5%. But the expense ratio for selecting mutual funds is not always correct.

Mutual Fund Terms

6. AUM (Asset Under Management)

AUM is also an important mutual fund term that every investor should know. It means the total sum of investors and the size of the asset controlled by the AMC. The AUM of a mutual fund fluctuates every day as investments and withdrawals happen every day, it is one of the most important parameters that investors should consider for the performance of the AMC.

7. Corpus

Corpus is called your total investment amount. For example, let us assume that you have purchased 20 quantities of a mutual fund and the unit price is Rs 50, then your total invested amount will be Rs 1000, which is called the corpus.

Mutual Fund Terms

8. Entry load and exit load

Entry load is called the fee that you initially make while entering the mutual fund. Generally, it is 1 or 2% of your NAV. However, this is only for regular investors, SEBI has removed the entry load for direct mutual fund investors and exit load is the fee that you pay while selling your fund i.e. at the time of taking an exit. The general exit load is applicable only if you exit your fund before a specified time. Usually, this is 0.5% of your NAV if you exit before one year.

9. lock-in period

Some funds have a lock-in period i.e. you cannot exit from that fund before that time like tax saving funds which have a lock-in period of 3 years.

10. NFO (New Fund Offer)

A new fund offer is like an IPO, it is offered to the public to raise capital for a new scheme. Whenever a new scheme is launched by AMC, it is done through NFO.

Mutual Fund Terms

11. Redemption

When you take exit from your mutual fund i.e. sell the fund house back, it is called redemption. At the time of redemption, it will get value according to the NAV of the fund at that time.

12. CRISIL Rating

CRISIL ranks mutual funds in India on the basis of its research. So one of the factors for investors can be CRISIL Rating to see the performance of Mutual Funds.

I hope these 12 mutual fund terms are very helpful for you. If this article is helpful for you then so some love by commenting in the comment section.

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