Mutual Fund Investment Important Glossary

Mutual Fund Investment Important Glossary 

Fund Manager..!

 An employee of the asset management

company such as a mutual fund or life insurer, who manages

investments of the scheme. He is usually part of a larger

team of fund managers and research analysts.

Application Amount for Fresh Subscription ..!

 This is the minimum investment amount for a new investor in a mutual

fund scheme.

Minimum Additional Amount..!                                                                          This is the minimum investment amount for an existing investor in a mutual fund scheme.

Yield to Maturity ..! 

The Yield to Maturity or the YTM is the

rate of return anticipated on a bond if held until maturity.

YTM is expressed as an annual rate. The YTM factors in the

bond’s current market price, par value, coupon interest rate

and time to maturity.

SIP..!  

SIP or systematic investment plan works on the

principle of making periodic investments of a fixed sum. It

works similar to a recurring bank deposit. For instance, an

investor may opt for an SIP that invests Rs 500 every 15th of

the month in an equity fund for a period of three years.

NAV ..! 

The NAV or the net asset value is the total asset value

per unit of the mutual fund after deducting all related and

permissible expenses. The NAV is calculated at the end

of every business day. It is the value at which the investor

enters or exits the mutual fund.

Benchmark ..!  

A group of securities, usually a market index,

whose performance is used as a standard or benchmark to

measure investment performance of mutual funds, among

other investments. Some typical benchmarks include the

Nifty, Sensex, BSE200, BSE500, 10-Year Gsec.

Entry Load ..!

 A mutual fund may have a sales charge or load

at the time of entry and/or exit to compensate the distributor/

agent.

Entry load is charged at the time an investor purchases

the units of a mutual fund. The entry load is added to the

prevailing NAV at the time of investment. For instance, if the

NAV is Rs. 100 and the entry load is 1%, the investor will

enter the fund at Rs 101.

Note: SEBI, vide circular dated June 30, 2009 has abolished

entry load and mandated that the upfront commission

to distributors will be paid by the investor directly to the

distributor, based on his assessment of various factors

including the service rendered by the distributor

Exit Load ..!

 Exit load is charged at the time an investor redeems

the units of a mutual fund. The exit load is reduced from the

prevailing NAV at the time of redemption. The investor will

receive redemption proceed at net value of NAV less Exit load.

For instance if the NAV is Rs 100 and the exit load is 1%, the

investor will receive Rs 99.

Modified Duration ..!

 Modified duration is the price sensitivity

and the percentage change in price for a unit change in yield

Standard Deviation ..!

 Standard deviation is a statistical measure of the range of an investment’s performance. When a mutual fund has a high standard deviation, its means its range of performance is wide, implying greater volatility.

Sharpe Ratio ..!

 The Sharpe Ratio, named after its founder, the

Nobel Laureate William Sharpe, is a measure of risk-adjusted

returns. It is calculated using standard deviation and excess

return to determine reward per unit of risk.

Beta ..!

 Beta is a measure of an investment’s volatility vis-à-vis

the market. Beta of less than 1 means that the security will be

less volatile than the market. A beta of greater than 1 implies

that the security’s price will be more volatile than the market.

AUM ..!

 AUM or assets under management refers to the recent

/ updated cumulative market value of investments managed by

a mutual fund or any investment firm.

Holdings..!

 The holdings or the portfolio is a mutual fund’s

latest or updated reported statement of investments/securities.

These are usually displayed in terms of percentage to net

assets or the rupee value or both. The objective is to give

investors an idea of where their money is being invested by the

fund manager.

Nature of Scheme ..!

 The investment objective and underlying

investments determine the nature of the mutual fund scheme.

For instance, a mutual fund that aims at generating capital

appreciation by investing in stock markets is an equity fund

or growth fund. Likewise, a mutual fund that aims at capital

preservation by investing in debt markets is a debt fund

or income fund. Each of these categories may have subcategories.

Rating Profile ..!

 Mutual funds invest in securities after

evaluating their creditworthiness as disclosed by the ratings. A

depiction of the mutual fund in various investments based on

their ratings becomes the rating profile of the fund. Typically,

this is a feature of debt funds.

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