9 mutual fund terms you should know

Many of us might know what is mutual fund, but for the interest of beginners mutual fund is an investment avenue which collects the money from the retail investors like us and then they invest that money in stocks on behalf of us by dedicated professional managers for to achieve the maximum returns. Gain or loss from the money they invested in stocks shares proportionately to all the investors. The mutual fund industry is controlled by the SEBI (Securities and Exchange Board of India).

If you have the money and willing to invest in mutual funds to gain better returns hence you can achieve your financial goals, you should know the below jargon before invest in any fund.

AMC:
Asset management company is mutual fund company that manage and invest the money collected from retail investors that match its declared financial objectives.
The beauty/advantage of investing in mutual fund is, Asset management companies provide investors with more diversification and investing options than they would have by themselves.

NFO:
New fund offer, which means new mutual fund scheme launched by the mutual fund house and asking the investors to invest in that scheme.

NAV:
The Net Asset Value is the price of a unit of a mutual fund. When fund launches , it decides the unit price of a fund. In future NAV of the fund can increase or decrease based on the fund performance. Generally NAV per unit is computed once a day based on the closing market prices of the securities/stocks in the fund’s portfolio.

Corpus:
The amount of money collected by mutual fund company from investors is nothing but corpus.
Every mutual fund start with NFO( New Fund Offer ) to collect the money from investors and fixed each unit value as 10 rupees. For example 100 investors bought 10 units each. So total money got by mutual fund company from investors is 1000 * 10 * 10 = Rs. 1,00,000.
So, here mutual fund corpus is Rs. 1,00,000. In future this corpus amount can increase or decrease as and when investor buy the units or sell the units respectively.

Portfolio:
A list of the financial assets held by mutual fund house. Take an example of SBI mutual fund to explain it in better way. SBI mutual fund collects the money from the public and invest in stocks on behalf of us. For instance, this fund collected 100 crore rupees from public and invested 50 crore rupees in stocks, 25 crore rupees in debt funds and remaining 25 crore rupees in government bonds.
So, SBI mutual fund portfolio is 50 crore rupees in stocks + 25 crore rupees in debt funds + 25 crore rupees in government bonds, which is equal to total money (i.e. 100 crore rupees) maintaining by SBI fund.

Load:
The transaction fee charged by the fund company on you when you buy or sell the units of a mutual fund.

Entry load, is the transaction fee charged on you when you buy the mutual fund units. Let’s say you are investing Rs 10,000 and the entry load is 2% and unit value is Rs 10. That means you pay Rs 200 as the entry load and Rs 9,800 is your final investment for which you will get 980 units in that fund.

Exit load, is the transaction fee charged on you when you sell the mutual fund units. Let’s say Rs 10,000 you invested initially is now grown to Rs 15,000. You are willing to sell your units at the exit load is 2%. So you pay Rs 300 and you will get Rs 14,700.
Note: SEBI(Securities Exchange Board of India) waived of the entry load when the investor invests directly in the fund.
Generally small corpus funds charge you more load and big corpus funds charge you less load. Fund houses will use the amount collected as load from us for the operational costs like, fund manager salary, advertisements, marketing etc…

AUM
Assets Under Management is the total value of all the assets currently being managed by the fund.
Let’s say the corpus is Rs 12,000 but, due to a rise in the price of the shares it has invested in, the value of the units has increased. So the Rs 12,000 invested is now worth Rs 15,000. This increased figure is referred to as AUM.
You may get confused among the terms AUM and Corpus, AUM is the value of fund investments as of date and Corpus is total investment made by investors on the fund irrespective of current value / worth.

SIP:
Systematic investment plan is the mode of investment in any mutual fund. By using SIP you need to invest fixed amount of money regularly like monthly or by monthly etc.., whichever the option you choose while investing. hence you will get the fund units accordingly.
Let’s say every month you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
Note: Best investment option to invest in mutual funds is through SIP.

Growth and Dividend Plan:
When an investor invests the money in any mutual fund and due to good market conditions if the fund performs well then fund unit value will be increase. At this point of time board of directors of the mutual fund can decide to share the earnings to their unit holders. So the amount allocated to unit holder by fund house is called Dividend. You are eligible for the dividend if you opt the dividend plan while making the investment in particular fund. As a result, NAV of the fund falls by the amount of dividend declared.
Example: Let’s say if the NAV of the fund is Rs 50 and the fund house declares a dividend of Rs 5 per unit, then the NAV of the fund will go down by Rs 5 i.e. new NAV becomes Rs 45.
If you opt the growth plan while making the investment in the particular fund, you did not get any dividend rather your NAV goes on increasing.
Example: Let’s say you invested Rs 1000 in fund A and 10 units allocated for you. so your unit value is Rs 100. If the NAV appreciates to Rs 120 then the worth of your 10 units now is Rs1200. So in growth plan your units remain while the worth of your investment has gone up.