Mutual fund industry requires a lot of knowledge when it comes to investing someone’s hard earned money in securities. If you want to act as an investor then you need to understand some of the Mutual Fund Terms companies to become a pro in this industry.
Must Know Mutual Fund Terms For Investors
AMC: Asset Management Company is a firm registered under guidelines of SEBI that invests pooled money of different investors in securities such as stocks, bonds, real estate which helps in strengthening their portfolio. It also handles day to day operations on investments. Some of the AMCs are ICICI Prudential Mutual Fund, HDFC Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund etc.
NAV: Net Asset Value is the current market prices of units and is calculated on daily basis. It represents the price at which investors can buy or sell units of the fund in the stock market. It is the indicator of the fund’s performance over a period of time. The formula used to calculate NAV is by dividing the total value of all the fund’s holdings, minus liabilities, by the number of outstanding shares. This is Must Know Mutual Fund Terms For Investors
CORPUS: It is the total amount of money invested by all the investors in a particular scheme.
AUM: Asset Under Management is the total market value of the investments in terms of financial assets that a firm manages on the behalf to the clients. Funds with greater AUM tend to be more liquid in the stock market.
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ELSS: Equity Linked Savings Scheme is a diversified equity mutual fund that is eligible for 80C deductions. It offers tax deductions up to Rs. 1.5 lakhs annually. However, Previously, ELSS returns were completely tax-free. Post Budget 2018, the long-term capital gains tax in excess of Rs 1 Lakh would be taxed at 10%. Most Important Mutual Fund Terms
NFO: New Fund Offer is the first time offering of a unit to public where investor purchases units at its face value.NFO period-15 days, in tax saving scheme 30 days.
SIP: Systematic Investment Plan is one of the most commonly used terms of mutual funds representative. SIP gives investors the liberty to invest in a scheme on a monthly basis with as less as Rs. 500. With the help of SIP Plan, one can easily start investing to fulfill financial goals.
STP-Systematic Transfer Plan is transferring investment from one asset class or asset type into another asset class or asset type. The transfer happens over a period. Systematic Transfer Plan is of two types i.e., fixed STP, and capital appreciation STP. A fixed STP is where investors is able to take out a fixed sum from one investment to another. A capital appreciation STP is where investors take the part of profit from one investment and invest in the other.
SWP: Systematic Withdrawal Plan is a facility offered by mutual fund where an invest gets an option to withdraw a predetermined amount at a pre decided rate including interval payouts monthly, quarterly, semi-annually or annually. A systematic withdrawal plan is mostly used for retirement related schemes.
PORTFOLIO: It is a set of financial assets such as stocks, currencies, bonds, commodities, real estate and cash equivalents that are held by the Investment Company, financial institution or individual. A balance set of portfolio reduces the risk factor of the investor.
EXPENSE RATIO: This ratio is the percentage of fees paid to the mutual fund company to manage and operate the fund, including all administrative expenses
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LOAD: Mutual fund companies collect an amount from investors when they enter or leave any particular scheme. This fee is generally called as a ‘load’.
ENTRY LOAD: The amount charged from an investor while entering a scheme or joining the company as an investor .Mostly, entry load covers the cost of distribution. Earlier, In India, this charge was usually of about 2.25% of the value of investment. But in August 2009, SEBI has abolished this practice of charging entry load for mutual funds.
EXIT LOAD: Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme or the company as an investor. Different mutual funds companies charge different fees in the form of an exit load.
CAGR: Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” – Einstein
CAGR interprets how much a person’s investment grew over a specific period of time. In other words, it is the average returns an investor has earned on the investments after a given interval of time.
EQUITY FUNDS: This is a fund which will invest in stocks or shares of various top companies on behalf of several investors. Some investors invest in blue chip or large cap companies which some invest in a mix of large and small sized companies,
BALANCED FUNDS: A balanced fund is a fund that contains a mix of stock component, a bond component and sometimes a money market component within a single portfolio. The holdings are balanced between equity and debt with their objective lying between growth and income.
DEBT FUNDS: A debt fund invests in fixed-interest generating securities like corporate bonds, government securities, treasury bills and money market instruments. The basic reason behind investing in debt fund is to earn interest and capital appreciation. It involves negligible risk attached to it.
KYC: Know Your Customer is a Customer Identification Process with a primary objective to ensure that the investments are made in the name of a real person and not fictitious one. It also helps to curb black money from the securities market. A SEBI-registered entity, KYC Registration Agency (KRA) holds investors’ information in a single database that all fund houses and intermediaries can access.
REDEMPTION: Redemption means the repayment of the bonds or other debts securities on or before the date of maturity. In case for a mutual fund investor to make a redemption, he must inform his fund manager and place his/her request.
SWITCH: Switch is additional facility available to investors which is related to transferring investments from one scheme to another. In the investment market, investor may wish to switch from one fund to another depending upon the nature and purpose.