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Monday, March 14, 2016

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.

Mutual Fund Investment Important Glossary Reviewed by S. Chitra on March 14, 2016 Rating: 5 Mutual Fund Investment Important Glossary  Fund Manager..!   An employee of the asset management company such as a mutual fund or l...

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