A Glossary of Terms About Mutual Funds You Must Know

Has complicated jargon kept you away from mutual fund investment? Well, no more. Here is a glossary of mutual fund terms you should understand to begin a fulfilling investment journey.

1. AMC

Asset Management Company is a firm registered under SEBI. It uses the money pooled from individual investors to fund assets like shares, bonds, stocks, etc. based on a common objective. They are also called money management firms in common parlance.

2. AUM

The next commonly used jargon in our mutual funds glossary is AUM or Asset Under Management.

It reflects the aggregate market value of all the assets a fund holds and manages at present. A fund's AUM value is subject to change daily.

3. Benchmark

Benchmark offers a set of parameters for comparison. It offers a standard to analyse and compare the performance of a mutual fund online. A fund performs well when it surpasses its underlying benchmark index. NSE Nifty and BSE Sensex are two such benchmarks.

Additional Read: Understanding Mutual Fund Terminologies

4. Exit Load

Exit load is the fee you need to pay when redeeming a fund investment. However, the charges are usually different from one fund to another.

5. Expense Ratio

Also called Management Expense Ratio, Expense Ratio is the annual fee investors have to pay for fund operation and management. It is calculated as a percentage of the asset and covers legal costs, audit fees, advertising costs, insurance premiums, administration expenses, and other related charges.

6. NAV

Net Asset Value is the total value or price of a unit in a mutual fund scheme. It is calculated by dividing the AUM value by the number of units issued by the fund. Moreover, NAV is estimated after the end of a trading day, so its value changes every day.

Typically, the higher the NAV, the better the fund is performing.

7. Rupee Cost Averaging

This is a type of investment approach wherein you park a fixed amount in the same mutual fund irrespective of the per-unit cost. So you buy more units when the market is down and fewer units when the market is high. As a result, the total cost of purchase averages out.

8. SIP

A Systematic Investment Plan is a route of investing in mutual funds at regular intervals instead of making a lump sum payment. Investors need to pay a fixed amount at a prespecified date to buy units of a particular scheme either weekly, monthly, quarterly, etc.

Additional Read: What is a Mutual Fund and How Does it Work?

9. Withdrawal Plan

It is a facility that allows investors to withdraw a specific amount at a specific date from their accumulated fund investment. They can choose to get the payment quarterly, monthly, bi-monthly, etc.

Conclusion

There! Now you're familiar with some of the most common mutual fund terms. So, why wait any longer? Download the Moneyfy app to begin your investment journey and experience the power of compounding over the long term.