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Before starting mutual funds investment, one should be aware of basic mutual funds terms.
Mutual funds terminologies are a bit complex and but it is easy to understand.
Share market is the best place to make high returns with quick time. But there will be a lot of risks and there will no guarantee. There should be constant monitoring of the stocks price.
But Mutual Funds are easy and reliable for long-term goals. Here the return is low but for the long term, this is the best way.
Now there is a lot of demand in mutual funds investments. In this mutual funds scheme, one can easily start investing without prior knowledge about the share market.
So, it is not necessary to know about the share market. Because in Mutual funds the investment of the users will be monitored, gathered, and invested by the fund managers.
Here, fund managers are skillful and have supreme knowledge about investment. Ultimately, one’s investment will be invested in various securities such as government bonds, gold, FDs, Equity, Debt, and many more.
Therefore, the chances of getting cash flow are maximum. So, this investor portfolio has high diversification.
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However, your money will be in safer hands. As the fund manager will surely understand the market trend and invest in the best way.
But one should have Basic mutual funds terms knowledge to have a better understanding.
In this blog, you will understand the Basic mutual funds terms.
Even queries on
- What is Nav in a Mutual fund?
- Difference between Entry load and Exit load in Mutual funds investment?
- What is SIP?
will be sort out.
Basic Mutual Funds terms
Mutual funds investment is quite easier compared to its terminologies. But the proper effort can make it easier. So, terms in mutual funds like
AMC
AMC full form is an Asset Management Company. It is a financial organization or company or institution where there will be multiple funds.
In simple words, it is a mutual fund company and manages multiple funds with the user’s investment. Now, there are a lot of companies managing this type of function.
Some Asset Management companies are
- ICIC mutual Funds
- SBI Mutual Funds
- Mutual Funds Sahi Hai
NAV
NAV abbreviation is Net asset value. In the mutual fund’s investment, primarily investors will deal on unit funds.
It is simpler, wherein the share market investors are dealing with the shares of the company.
Likewise, here investors will have to deal with the funds unit. NAV is nothing but equivalent to the share prices of the stocks. Even for each funds units, there will be a certain Net Asset Value (NAV).
NAV is one of the basic mutual funds terms. It is used more frequently in the market.
Expense Ratio
Many of the investors have queries like
- What is Expense Ratio?
- How does Expense Ration affect the return?
Mutual funds companies have certain expenses annually. Every year company has to meet office, employees, and other expenses.
In addition, in mutual funds investment, Fund Managers are playing the main role with the investor’s money. He will be investing in various securities.
So, here investors are being charged annually by the company to meet end-to-end expenses. This is called as Expenses Ratio. Basically, the expenses ratio will be around 2 to 3%.
Here, the Expenses ratio will affect the returns indirectly. As in mutual funds, the majority will be investing in long-term schemes. So, this type of expense depreciates the value of the returns.
LOAD
Load in the Mutual funds are the charges to be paid by the investors while buying or selling the fund units.
Entry Load
While entering the investment, there are certain charges to be paid. So, one should liable to pay the fees before starting the initial investment. This type of initial charge is known as Entry Load.
Entry load will be around 2% on the initial investment.
Exit Load
It is contrary to the Entry Load. In the Entry, Load charges are laid on investment over the fund units.
Exit Load is a certain charge laid on the investors during selling the funds with the help of the Fund Manager.
Ultimately, in Mutual Funds investment, there is a lot of hidden charges. So, there is a lot of cuts on the returns.
SIP a basic Mutual Funds terms
The major advantage of Mutual Funds is SIP. Here SIP abbreviation is Systematic Investment Plan.
As the name suggests, here investments are done periodically. In the SIP investors will pay certain money to the specific fund units each month. The money will be debited automatically.
So, SIP gives a disciplinary way to the investors to make an investment. Therefore, investors will get the return annually or according to the plan.
Here, the Systematic Investment Plan will give a return of over 12% of the investment.
SIP is one of the important and basic Mutual funds terms.
Portfolio (Basic Mutual Funds Terms)
Share market and Mutual funds Portfolio have the same meaning. In the share market, Portfolio shows the overall investment done on the various share.
Similarly, Portfolio portraits the entire investment in the fund units. The portfolio is the basic Mutual Funds terms.
Open-End Fund
These types of funds are only available in Mutual funds only. So, one cannot make any kind of investment in the open-end fund in the share market. Because it is exclusively available in Mutual funds.
Closed-End Fund
In this type of fund, investors can invest in both the share market and as well as in Mutual funds.
ELSS
Equity Linked Saving Scheme is the best one to make an investment. Because one can get tax-free returns up to 1.5 lakhs.
To get the benefits, one has to invest for over 3 years in the scheme. Then only he/she is liable to enjoy the tax-free return.
So, these are some of the essential and basic Mutual Funds Terms.