Mutual Fund Investment Basic Terms Mutual Fund: A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets.
NAV (Net Asset Value): Mutual Fund Investment Basic TermsNAV is the per-unit market value of a mutual fund scheme. It is calculated by dividing the total value of all assets in the fund’s portfolio, minus liabilities, by the number of outstanding units.
SIP (Systematic Investment Plan): SIP is a disciplined investment strategy that allows investors to invest a fixed amount of money regularly in a mutual fund scheme at predefined intervals, typically monthly.
SWP (Systematic Withdrawal Plan): SWP is a strategy that allows investors to withdraw a fixed amount of money regularly from their mutual fund investments. SWP provides investors with a steady income stream while preserving their investment capital.
STP (Systematic Transfer Plan): STP is a strategy that involves transferring a fixed amount of money regularly from one mutual fund scheme to another. STP helps investors implement asset allocation strategies and manage market volatility.
Asset Allocation: Mutual Fund Investment Basic TermsAsset allocation refers to the process of distributing investment capital among different asset classes such as equities, bonds, and cash equivalents to achieve diversification and manage risk.
Diversification: Diversification is a risk management strategy that involves spreading investments across different securities, asset classes, or geographical regions to reduce the impact of market volatility and maximize returns.
Expense Ratio: Expense ratio is the annual fee charged by a mutual fund scheme to cover operating expenses such as management fees, administrative costs, and marketing expenses. It is expressed as a percentage of the fund’s average assets under management.
Load: Load refers to the sales charge or commission paid by investors when buying or redeeming units of a mutual fund scheme. Loads can be front-end (charged at the time of purchase) or back-end (charged at the time of redemption).
Redemption: Mutual Fund Investment Basic TermsRedemption is the process of selling units of a mutual fund scheme and withdrawing the proceeds from the investment. Investors can redeem their units either partially or fully, subject to the fund’s terms and conditions.
Dividend: Dividend is a distribution of profits or income earned by a mutual fund scheme to its unit holders. Dividends can be paid out periodically (e.g., quarterly or annually) or reinvested back into the scheme to purchase additional units.
Capital Gains: Capital gains are profits earned from the sale or redemption of mutual fund units at a price higher than their purchase price. Capital gains can be short-term (if units are held for less than one year) or long-term (if units are held for more than one year).
Risk Profile: Risk profile refers to an investor’s tolerance for risk and volatility. It is determined by factors such as investment objectives, time horizon, and financial situation. Mutual fund schemes are categorized based on their risk profile, such as equity funds (high risk), debt funds (low to moderate risk), and hybrid funds (medium risk).
Benchmark Index: Benchmark index is a standard against which the performance of a mutual fund scheme is measured. It represents a specific market segment or asset class and serves as a reference point for evaluating the relative performance of the scheme.
Volatility: Volatility refers to the degree of fluctuations in the value of a mutual fund scheme’s NAV over time. High volatility indicates greater price swings and uncertainty, while low volatility implies stability and predictability.
Exit Load: Mutual Fund Investment Basic TermsExit load is a fee charged by a mutual fund scheme when investors redeem their units before a specified period, known as the exit load period. Exit load helps discourage short-term trading and encourages long-term investing.
Asset Under Management (AUM): AUM is the total market value of all assets (securities, cash, and other holdings) managed by a mutual fund scheme on behalf of its investors. AUM is a key indicator of the size and scale of a mutual fund scheme.
Growth Option: Growth option is a type of mutual fund scheme where dividends earned by the scheme are reinvested back into the scheme to purchase additional units. Investors benefit from capital appreciation, but no regular income is paid out.
Dividend Option: Dividend option is a type of mutual fund scheme where dividends earned by the scheme are distributed periodically to investors. Dividend option provides investors with regular income, but capital appreciation may be lower compared to growth option.
Prospectus: Mutual Fund Investment Basic TermsProspectus is a legal document that provides detailed information about a mutual fund scheme, including its investment objectives, investment strategy, risk factors, fees and expenses, performance history, and terms and conditions. Investors are required to read the prospectus carefully before investing in a mutual fund scheme.
