7 Basic Terms of Mutual Fund – You Must Know

7 Basic Terms of Mutual Fund – You Must Know

 

Planning to invest in stock market for good return on your investment, but don’t have time or enough knowledge to manage your portfolio? Mutual Fund is the best option for you to build your wealth for your life.

But, before investing in Mutual Funds you must understand the basic terms of mutual fund.

  1. AMC (Asset Management Company):

Asset Management Company is a company that manages the money invests in mutual funds, it is also known as fund house.

Features of AMC

  • The Mutual Fund is a trust; it is registered under the Indian Trust Act.
  • It is initiated by a sponsor.
  • A sponsor is a person.
  • A sponsor acts alone or with a corporate to establish a mutual fund.
  • The sponsor appoints an AMC to manage the investment, marketing, accounting and other functions related to the fund.
  1. NAV (Net Asset Value):

NAV, Net Asset Value is the price of a unit of a fund. It shows the value of a fund’s asset. It helps an investor to determine the fund whether it is undervalued or overvalued.

Mutual Fund calculates its NAV by adding up the current value of all the stocks, bonds and other securities in the portfolio. Subtract the manager’s salary and other operating expenses and divide the final figure by the fund’s total number of shares.

  1. Load:

The Load is percentage of the NAV. Load is of two types – entry load and exit load.

When you buy the units of a fund, investor pay the percentage of it as fee, it is known as entry load. Generally, if funds charge entry load, they will not charge an exit load or vice versa. Only one of the loads is charged.

  1. Corpus

Suppose you buy 1000 units of mutual fund and each unit is worth Rs. 10 hence the total amount with the fund is Rs. 10, 000. Later, some other investors invest Rs. 5000. So the total corpus of this fund is Rs. 15, 000.

  1. AUM (Asset Under Management)

Asset under management is the total value of all the investments which is currently any fund house is managing.

  1. NFO (New Fund Offering)

A new fund offer is a first time offer of a new scheme of Asset management Companies. NFOs launched in the market to raise capital from the public in order to buy securities like shares, govt. bond etc.

  1. SIP

SIP is a Systematic Investment Plan; it refers to periodic investment in a mutual fund.

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