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What are mutual funds and their related terms for beginners?

Mutual Fund pools in money from many investors and then invest the corpus across various asset categories such as stocks, debt, bonds, money market instruments, etc. Mutual Fund investments cater to all kinds of investors basis their risk appetite, investment horizon, financial goal, etc. Mutual Fund for beginners needs to be well assessed with their asset allocation and risk appetite and then chosen with care.<br>

Nidhimehra
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What are mutual funds and their related terms for beginners?

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  1. What are mutual funds and their related terms forbeginners? Mutual Fund pools in money from many investors and then invest the corpus across various asset categories such as stocks, debt, bonds, money market instruments, etc. Mutual Fund investments cater to all kinds of investors basis their risk appetite, investment horizon, financial goal, etc. Mutual Fund for beginnersneeds to be well assessed with their asset allocation and risk appetite and then chosen with care. Different categories in a MutualFund: They can be classified into differentcategories. Mutual Fund Investment on the basis of Asset Class (where the substantial portion of the corpus is invested) – Equity Funds, Debt Funds, Hybrid Funds, and Money MarketFunds Mutual Fund Investment on the basic investment objective – Growth Funds, Income Funds, Liquid Funds, Tax Saving Funds,etc. Mutual Fund Investment on the basis market capitalization – Large-cap, Mid-Cap and SmallCap List of terms for investing in a mutual fund forbeginners: Mutual Fund for beginners can seem tricky. But once you know a bit more about them, they will stop seeming so intimidating. Here are some must-know terms for investing in a mutual fund forbeginners Asset Management Company(AMC) AMC is the fund house that pools in money from investors and invests it on their behalf. They offer professional fund management services toinvestors. Asset under Management(AUM) AUM refers to the total market value of all mutual fund investments being managed by an AMC or any such financial institution. AUM is considered as the yardstick to measure or compare the success or performance of a fundhouse. Net Asset Value(NAV) NAV indicates the indicator of the per-unit cost of the fund as on a particular date. It is used to denote the net worth or value of a company or a fund house. It is calculated with thisformula: NAV = (Total Fund Asset – Total Fund Liabilities) / Number of outstandingshares Systematic Investment Plan(SIP) SIPs are principally similar to Bank Recurring Deposits. They allow investors to make a periodic contribution to investing in a mutual fund for beginners. The periodicity of investments can be weekly, monthly, quarterly or evenbi-annually. Systematic Withdrawal Plan(SWP) SWP allows investors to take out a specific sum of money from the mutual fund scheme basisa pre-defined schedule. It is often used as a facility to supplement income or plan for retirementfinances. MarketCapitalization

  2. Market capitalization is the total market value of a company’s outstanding stock. It is calculated by multiplying the current shareprice. Load It refers to the fees or charges that an investor needs to pay at the time of buying or selling mutual funds. There are two kinds of loads – Entry (charged at the time of buying) and Exit (levied at the time of exiting). The load is expressed as a percentage of the NAV. SEBI has banned Entry Load for all MF Schemes since August2013. Lock-inPeriod Lock-in period refers to a period of time during which investors are not allowed to sell, transfer or withdraw their mutual fund investment. However, all Mutual Fund schemes do not have lock-inperiods. Equity Linked SavingsScheme ELSS is a type of mutual fund that qualifies for tax deduction under Section 80C. It invests predominantly in equities or related instruments. ELSS has a lock-in period of threeyears. ExpenseRatio The expense ratio determines the amount that is charged by the AMC to manage the investor’s portfolio. It is derived by dividing the total expenses of the fund by the AUM and is expressed as a percentage. For instance, if you have invested Rs. 1 lakh and the expense ratio is 0.84%, then you would need to pay Rs. 840 to theAMC. CapitalGains Profits made from selling or redeeming Mutual Funds are known as capital gains. It is derived by deducting the initial investment from the sale proceeds. Based on the investment period, capital gains can be of two types – short-term and long-term. For instance, in equity mutual funds, holding period less than 12 months is considered as short-term. While in case of debt funds, it is 3years.

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