Top 10 terms you should know in mutual funds

Mutual fund investment has become the buzz word today. However, beginners may get baffled with different technical terms. Here are the top 10 terms commonly used in the mutual fund.

1. SIP – Let’s begin with the simplest and most popular – SIP, which is Systematic Investment Plan wherein you opt for regular fixed investment in mutual funds which gets deducted from your bank account directly.
2. NAV - NAV of mutual fund in simple language it the price per share of the mutual fund; like stocks have share price, mutual funds have NAV. It is the price at which you buy each unit of mutual fund, which is calculated at the end of each trading day. NAV of the mutual fund also is one of the indicators of the performance of your mutual fund when considered in consideration of market condition.
3. AMC – When you buy a mutual fund, you actually put your money in the hands of a reliable company who manages your money for you. That company is called Asset Management Company or AMC. These fund houses provide financers with more options to invest than what clients can get by themselves. AMCs buy stocks for you or in other words investing your money in the chosen portfolio invests the pooled amount into securities. An AMC is like a parent umbrella wherein many diverse funds can float under.
4. Load - Load is the fee charged when you buy or when you sell or sometimes (rarely) for both buying and selling the units of the fund. It is a certain percent of the NAV. When you choose to invest in a certain mutual fund, what fee you pay while buying units it is calling entry load and the fee you pay while selling units is called exit load. Most fund either charge entry load or exit load only.
5. Corpus – Corpus is the total amount invested until date. Assume a fund has 1, 00,000 units each priced at Rs 10, so the total amount with the fund will be Rs. 10,00,000, this is called the corpus. Now assume some investors later put Rs. 25,000 in the fund, so now the corpus stands at Rs 10, 25,000.
6. AUM – Asset Under Management is the market value in the investment an AMC manages on behalf of investors. Bringing the above example to reference here, say the corpus of Rs 10, 25,000 was used to buy certain stocks whose price now grew to a total amount of 15, 00,000. The AUM here is 15, 00,000.
7. NFO – New Fund Offering is the term used for new mutual fund launched in the market.
8. TER – Total Expense Ratio is the ratio of total expense for the year and daily net asset average. Annual operating expenses like audit fee, legal fee, advisory fee, marketing expenses, etc. are all managed from the assets managed by the fund, a lower TER means higher returns.
9. STP – Systematic Transfer Plan allows you to put a certain amount from one fund to another. Say you have Rs 1,00,000 so instead of investing the whole amount in one go, you may choose to put it all in a more secure Debt fund and decide to transfer a pre-determined sum every month or week. And vice versa is also possible.
10. SWP - Systematic Withdrawal Plan is the exit plan, it is a systematic withdrawal which can be utilized like a pension plan.