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-Ã -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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