10 Terms Every Smart Investor Must Know

Here’s a list of 10 commonly used terms in mutual funds simplified for you.

If you have been exploring the mutual funds industry, you must have come across these terms loosely thrown around. Here’s what they actually mean.

  1. NAV: The Net Asset Value (NAV) of a mutual fund represents its per share market value which is updated on a daily basis. When you buy a mutual fund unit, you buy it at this ‘price’ and the same goes for selling the units too.
  2. Scheme Benchmark: A scheme’s performance is compared against a benchmark or indices. Typical benchmarks being Sensex & Nifty50. The benchmark index chosen is based on the objective of the fund.
  3. Annualized Returns: The amount of money the investment has earned for you over a year, are your annualized returns for an investment.
  4. AUM: Assets Under Management is the total value of assets or capital owned by an asset management company (AMC).
  5. Folio Number: When you invest in a mutual fund scheme, you are allocated a unique number by the AMC. A user can have multiple folio numbers for a specific scheme of the same AMC.
  6. Scheme Riskometer: A scheme riskometer indicates how risky that scheme is, from a spectrum of it being low, moderately low, moderate, moderately high or high. Each scheme has its unique riskometer.
  7. Exit Load: As the name suggests, it implies the fee that is charged by AMC when a user withdraws before the lock-in period is over.
  8. SID: Every mutual fund scheme has a designated Scheme Information Document (SID), created by the AMC. It has all the relevant & mandatory information about the mutual fund scheme such as:
    Investment objective & policies, asset allocation pattern, fee & liquidity provisions. The document also contains information about fund management team details, risk factors, load, past performance, benchmark, unit holder information, AMC branches, investor service centers & official points of acceptance.
  9. Fund Rating: It is a score assigned by rating agencies to schemes after assessment of securities based on multiple factors such as risk, historical performance & returns of a fund.
  10. Lock-in Period: A set period during which an investor is restricted from selling units of a mutual fund. The restriction is imposed by the fund house, in the form of exit loads, or fee that an investor must pay. ELSS funds typically have a 3 year lock-in period, while debt or liquid funds have a much shorter lock-in period.

Help us with more such terms that you might have come across and would like us to explain or simplify for you. We will add more to the list :)