mutual funds terms

15 commonly used mutual funds terms

Welcome to our next Article of the mutual funds terms , we have already completed our article one. We had when we discussed. About the basics of mutual funds in this section, we are going to deep dive into mutual funds schemes and many more things. So before we begin, let us focus on most common. jargons used in the mutual funds, so let us begin.

mutual funds terms jargons
mutual funds terms jargons

1: Asset Management Company,

(AMC), it stands for Asset Management Company, they are financial institutions that manage multiple funds like HDFC Mutual Fund, SBI Mutual Fund, ICICI Mutual Fund, Kwarteng Mutual Fund. So these are the big fund houses that managed mutual fund schemes.

2: Net asset value

Next is a Nav, the Nav stands net asset value in a layman’s language. It is the price per share or unit of the mutual fund. As stocks have a shared place. Mutual funds have Nav, if we are buying 100 units of a mutual fund, then we buy it. Any rate, that is net asset value. Then we have so much. OK, so let me discuss something more. The share price fluctuates throughout the day at exchanges. The Nav does not change the Nav of often this calculated at the end of the trading day.

3: Asset under management

 A.U.M. that is Asset under management, which means the total sum of investors, which the AMC is controlling, it is the total size of assets which these AMC manage for their client. Any who of an AMC is the sum of total assets held less its liabilities. These funds are used to transact any by. Transact and buy shares, bond, etc., on behalf of their clients. So for them, their clients, we the people who invest in mutual fund schemes.

4: Benchmark

benchmark performances, could good better or this can only be ascertained if there is a tool to compare to things. Similarly, whether a Fund is doing well or not can be said only if we compare it to an underlying benchmark. So Benchmark is used to compare the performance of the mutual fund scheme. Benchmark is usually the index. It might be nifty fifty nifty pharma if the bank or any other index that is used in the. Market.

5: Portfolio.

we have a portfolio. The portfolio shows all the investments made by a fund, including the amount in cash.

Let’s take an example of a portfolio.

If a fund has invested 80 percent of its total value in top 50 companies and has kept remaining 20 percent amount as cash, then these 50 companies and cash consist of the portfolio of that fund.

6: Funds.

Then we have fund itself. These are the individual schemes with special specific goals and investment philosophies. For example, some I won’t be naming any mutual fund scheme, but we can say if we discuss HDFC, AMC, so they will have different schemes, which is known as a foreign investor.

7: Expense ratio.

Next is the expense ratio. It is the annual fee charged by the mutual fund scheme to manage money on our behalf. It covers the fund managers fee, along with other expenses required to run the fund administration. A lower ratio means more profitability and a higher ratio means less profitability. For an individual investor, usually the expense ratio for an active fund is between one point five to 2.5 percent annually. Do we need to understand one thing? There are many schemes that charges high expense ratio, but they give us better returns as well. So we need to do our research. If the scheme is charging us higher expense ratio and paying better returns, then we should not hesitate in paying a higher expense as well.

8: Entry load.

Then we have entry load. This is the initial fee that we pay while entering the mutual fund here, we pay a percentage of the anyway. Now, the regulators has banned the entry load, so we don’t see any reloads nowadays.

9: Exit load.

Then we have exit load. This is the charge for redeeming our unit. That is this is that amount that we have to pay as fees when we sell our fund. So let me link exit and redemption here. Redemption is so before redemption. We have a subscription. So after going through this course, you select a mutual fund scheme and you decide to invest in an explicit mutual fund. So when you invest money, it means it is a subscription. And when you take out your money from that scheme, that would be Tumnus. Redemption, redemption. It’s selling subscriptions, buying of the units.

10: Redemption.

So when you redeem means when you sell, there is an exit load and exit load is only if you have the units purchased for less than one year. So it is for a specific time period.

11: Lock in period.

Next is lock in period, lock in period, we discussed in equity linked savings schemes as well, legalises. So lock in period means for a specific period of time you cannot withdraw your money from the mutual fund. So any losses? We have a long period of three years.

12: New fund offer.

Then we have new fund offer. So you might have heard that when a company decides to go public, they issue shares and when they issue shares for the first time, we call it as IPO, that its initial public offering. Same is the case with mutual funds as well. When the mutual fund decides to launch a new scheme, then they term it as an effort that is new fund offer.

13:  Compounded annual growth rate (CAGR).

Next is CAGR, it stands for compounded annual growth rate. This is the percentage of return per year, which is compounded. This is not a simple return. It is a compounded return. 

14: Rating.

It stands for credit rating information services provided by the companies. So Griselle in India is responsible for providing credit rating to these mutual funds. So they rang the mutual funds in India based on their research. Obviously a higher rating is better. For example, if you decide to invest in a scheme, let’s say Large-Cap, we decide in Large-Cap we will have different E.M.S.as we discussed the meaning of E.M.S. in this slide earlier as well. So if we have 10 E.M.S. with different with the same Large-Cap Mutual Funds objective. If a scheme is there who has a rating of five and the others have four. So obviously what we would prefer is a vibrating because Kriesel would have done their own research very properly before giving them a five rating.

15: Institutional investors.

Institutional investors, institutional investors are big institutes that invest their money in these schemes. These can be banks, pension funds and other foreign investors. So understand, whenever an institutional investor would come, they will put crowds of money. And when a crowd of money is put, obviously the values of that mutual fund would go up. So institutional investors and retail investors, the difference is very simple. Retail. We people are retail investor, nominal amount, let’s say a thousand five thousand, ten thousand one leg. But an institutional investor will come and.

 So this is all about the commonly used mutual fund Jargons

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