A mutual fund is a collection of assets managed by a professional fund manager.
It’s a trust that takes money from a group of individuals with similar financial goals and invests it in shares.
Also bonds, money market instruments, and/or other securities.
After deducting appropriate expenses and taxes, the income/profits generated from this collective investment.
Mutual funds allow you to sit back and relax since they are professionally managed,
However, there are a number of often-used mutual fund phrases that investors should be familiar with.
In order to comprehend the “how,” “what,” and “where” of mutual fund investment.
Simply explained, a Mutual Fund is a collection of money contributed by a large number of investors.
Here’s a quick guide to help you grasp the notion of a Mutual Fund Unit.
Let’s imagine you have a box of 12 chocolates that costs $40.
Four friends decide to purchase the same item, but they only have ten dollars between them, and the shopkeeper only sells by the box.
So the pals decide to pool their money and buy the box of 12 chocolates for ten dollars each.
They now each earn 3 chocolates or 3 units based on their contribution.
Although, they’re each getting three chocolates, or three units if they’re comparing Mutual Funds.
And how can you figure out how much one unit costs? Just multiply the total sum by the number of chocolates: 3.33 = 40/12
As a result, multiplying the number of units (3) by the cost per unit (3.33) yields a total initial investment of $10.
As a result, each friend becomes a unit holder in the box of chocolates that they all own collectively, and each person becomes a part-owner of the box.
Let’s look at what “Net Asset Value,” or NAV, is. A mutual fund unit’s Net Asset Value per Unit is the same as an equity share’s trading price. The NAV stands for net asset value.
The NAV is the total market value of a fund’s shares, bonds, and securities on any given day (as reduced by permitted expenses and charges).
The market value of all Units in a mutual fund scheme on a particular day, net of all expenses and liabilities plus accrued income.
It is divided by the outstanding number of units in the scheme to arrive at the NAV per Unit.
Mutual funds are perfect for individuals who don’t have a lot of money to invest.
Or either nor have the time/ interest to investigate the market but still want to grow their money.
How to get started:
Open-end, entry load, exit load, and so on.
Asset Management Company (AMC):
A company that manages assets. If you invest in mutual funds, you’ve almost certainly heard of AMC.
An asset management company is a company that handles investors’ money. All AMCs are required to register with SEBI and follow the SEBI requirements.
The AMC can introduce a variety of funds to fulfill
the needs of different investors. It is in charge of managing your finances.
They collect money from many investors, invest it in various funds, evaluate the funds’ performance, and proportionally divide the earnings.
NAV stands for Net Asset Value:
Another typical mutual fund jargon you’ll come across.
whilst discussing mutual fund investment is net asset value or NAV.
NAV is the price of a mutual fund unit in basic terms. NAV is the price of a mutual fund unit in basic terms. Mutual funds, like stocks, have a net asset value (NAV).
So, if you’re purchasing 100 units of a mutual fund, you’ll have to pay the NAV.
The importance of NAV is that it serves as a barometer of a fund’s success over time. If you watch the fund’s NAV over time.
You may get a sense of how the fund is performing and make an informed investment decision.
SIP (Systematic Investment Plan)
One of the most widely used mutual fund terminologies is SIP.
This is a term that even non-mutual fund investors are familiar with.
SIP stands for a systematic investment plan, and it is a method of investing in mutual funds.
Along with, where you can put a small sum of money aside at regular periods (it can be weekly, monthly or quarterly).
It is a good way for modest investors, such as daily wage employees, to gain experience with mutual funds.
With as little as Rs. 500 every month, you can start a SIP.
Another useful feature of SIP is that it allows you to link your bank account to your investment account, and the pre-determined amount is automatically taken on a regular basis.
This, as a result, allows you to be more disciplined with your money.
STP stands for “Systematic Transfer Plan.”
The flexibility of a Systematic Transfer plan allows you to utilize the funds in a disciplined manner.
For example, instead of investing the entire sum of Rs. 1 lakh in equities mutual funds, you may invest the entire sum of Rs. 1 lakh in debt mutual funds.Rather than investing the entire cash at once.Instead of risking exposure, you can put it in debt funds managed by the same fund firm and select STP.As a result, a pre-defined amount will be moved to an equity fund at a prespecified interval (weekly or monthly) as determined by you.Thus, the entire sum is transferred to equity funds over time.
As a result, protecting your investment from market volatility.However, If you feel that your investment in equities funds has not yielded enough profits after a certain number of years, you can choose STP again and shift the money to debt funds.
Systematic Withdrawal Plan (SWP) If you plan to invest in mutual funds, as the name implies, allows you to withdraw collected funds over time.
In your post-retirement life, you can also use the money as a pension fund.
For example, if you start a SIP and invest Rs. 5000 per month for 30 years, your investment value would be Rs. 18 lakhs.
Assuming a 12-percent annual return, the funds in your account will be around Rs. 1.5 crores.
As a result, after you reach retirement age, you can withdraw a pre-determined sum at a pre-determined date.
AUM stands for Assets Under Management.
Another key mutual fund term that every investor should be aware of is AUM.
It shows the overall number of investors as well as the value of AMC’s assets.
The fund’s AUM fluctuates throughout the day as new investments are made and redemptions are made on a daily basis.
It is one of the most crucial factors that investors should examine when evaluating AMC’s performance and reputation.
- Load Exit
Depart load is a term used in mutual fund terminology to describe the costs that investors must pay when they exit a fund.
This fee is typically imposed by AMCs to deter investors from withdrawing their monies.
Aside from the terms mentioned above, there a plenty of more mutual fund-related terms to be familiar with.
Understanding these concepts will help in making better financial choices and achieving high returns.