The stock markets are booming and investment in mutual fund schemes are soaring. The Indian investor is increasingly looking at mutual funds as an important investment avenue. Here are 9 mutual fund terms that mutual fund scheme investors should know.
What is NAV?
When a fund offers a public offer it offers the scheme at Rs 10. When it invests the money and when the investment grows, the net asset value rises. So, you buy the scheme at Rs 10 and if you sell the same, you have to sell the same at the net asset value which could be Rs 11, Rs 12 or even Rs 9 (loss).
Asset Management Company
The Asset Management Company is like a holding company that comes out with various mutual fund schemes. So, Reliance Growth Fund (mutual fund scheme) was launched by Reliance Capital Asset Management Limited, which is the AMC.
Very important role
Once the money is garnered by the mutual fund scheme, the same is managed by portfolio managers. They allocate the money into shares or debt depending on the nature of the scheme. Their investment decisions form a crucial part in the performance of the scheme.
An important term to remember
This is another important term that you should note. Each time you invest in a mutual fund, you should check if there is an entry and exit load. If there is a load means when you buy you have to pay more than the NAV and when you sell you would get less than the NAV. This is not beneficial to investors at all.
What is a portfolio?
All of the shares and debt together form the portfolio. So, if a mutual fund scheme has bought the shares of Reliance, ICICI Bank, Bajaj Auto, IDBI Bank and some government securities, these would be collectively called as a portfolio.
AUM another important term
All of the money that is invested is collectively called assets under management. This could rise and fall depending on market conditions and inflow and outflow from investors.
Allows you to invest in small amounts
Most of the open ended mutual funds allow you to make investment in small amounts every month, quarterly and so on. This is called systematic investment plans or SIPs. It's exactly functions like a recurring deposit of a bank.
A New Fund Offer is nothing but a new offer from a mutual fund that is generally made at a face value of Rs 10.
Invests purely in debt
Those investors who are risk averse and who do not want a mutual fund scheme that invests its money in shares, can invest in this scheme. These are considered to be less risky then equity mutual fund scheme.