As we probably know, a mutual fund is an investment that pools together money from a number of investors. It then uses professionals to manage and invest this money with the aim of achieving a return.
The mutual funds industry is regulated by the Securities and Exchange Board of India. Here are some terms that one needs to understand-
1. AMC
An Asset Management Company is the fund house or company that manages money.
The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A sponsor is a person who acts alone or with a corporate to establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the fund.
For instance, ABN AMRO Trustee (India) Private Limited is appointed as the trustee to the ABN AMRO Mutual Fund. ABN AMRO Asset Management (India) Limited is appointed as its investment manager. Various funds with different objectives can be floated under the umbrella of one parent. So ABN AMRO Equity Fund, ABN AMRO Opportunities Fund and ABN AMRO Flexi Debt Fund are all independent schemes of ABN AMRO Mutual Fund. They are managed by the ABN AMRO AMC.
2. NAV
The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it is priced Rs. 10. Later, depending on the value, of the investments, this price could rise or fall.
3. Load
This is a fee that is charged when you buy or sell the units of a fund. When you buy the units of a fund, you pay a percentage of it as a fee. This is known as the entry load.
For example, one is investing Rs. 10000 and the entry load is 2%. That means he pays Rs. 200 as the entry load and Rs. 9800 is invested in the fund. Now assume, he is selling the units of his fund. And the Rs. 10000 he invested initially is now Rs. 15000. Let’s further assume the exit load is 2%. So he pays Rs 300 and gets back Rs. 14700. Generally, if funds charge an entry load, they will not charge an exit load. Or vice versa. Only one of the loads is charged. The load is a percentage of the NAV.
4. Portfolio
This is a term given to all the investments made by the fund as well as the amount held in cash.
5.Corpus
Let’s assume a very small mutual fund has an initial investment of 1000 units and each unit is worth Rs. 10. Hence, the total amount with the fund is Rs. 10000. This is referred to as the corpus. Later, some other investors invest Rs. 2000. Now the corpus will be Rs. (12000 (Rs. 10000+ Rs. 2000). The total amount invested is called the corpus or the total amount of money invested in the fund.
6. AUM
Assets Under Management is the total value of all the investments currently being managed by the fund. Let’s say the corpus is Rs. 12000 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. 12000 invested is now worth Rs. 15000. This figure is referred to as AUM.
7. Diversified Equity Mutual Fund
This is a mutual fund that invests in stocks of various companies in various sectors.
8. ELSS
Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act. To avail of the tax benefit, your money must be locked up for at least three years.
9. Balance Fund
A fund that invests in both equity (shares) and debt (fixed return investment) is known as balance fund.
10. Debt Fund
These are funds that invest in fixed return investments like bonds. A liquid fund is one that invests money in market instruments; these are fixed return investments of a very short tenure.
11.NFO
A New Fund Offering is the term given to a new mutual scheme.
12. SIP
A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units. Let’s say every month you commit to investing, say Rs. 1000 in your fund. At the end of a year, you would have invested Rs. 12000. If the NAV on the
Source:-Rediiff.com
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