Decoding The Mutual Fund Language: What Are The Key Terms?

Just like we consider learning the alphabet as the foundation for effectively developing written and communication skills in English, it is equally necessary to understand the ''ABC'' of mutual funds that can help us navigate our investments and achieve our financial goals. 

Here are a few terminologies which every mutual fund investor needs to recognise and understand by heart. 

Net Asset Value (NAV)

NAV, an abbreviation for Net Asset Value, is a term you will see and hear commonly if you are viewing the performance of your mutual fund investments. NAV determines the cost of a single unit of a mutual fund scheme. Just as each share has a market price, each unit of a mutual fund scheme also has a price at which the mutual fund unit is brought and sold. The NAV formula is total assets value minus the overall expense ratio divided by outstanding units.  

NAV can help you determine the value of your investments. For example, if you have 100 units of a mutual fund scheme at a NAV of Rs 10, your investment value is Rs 1,000 (Units*NAV). 

Systematic Investment Plan (SIP)

The Systematic Investment Plan (SIP) is a popular term in the world of mutual funds. SIP is a method of investing in mutual fund schemes where individuals can make investments of even small doses of money, as little as Rs 100, at regular intervals like daily, weekly, monthly, or quarterly. Benefits of SIP include disciplined investing at regular intervals and rupee-cost averaging. Today SIPs can be done at the click of a button and are paper-free and hassle-free.  

Systematic Transfer Plan (STP)

STPs allow you to transfer a pre-determined amount of money from one scheme to another in a disciplined manner, such as switching part of your investments from equity to debt funds. 

Systematic Withdrawal Plan (SWP)

SWP, or Systematic Withdrawal Plan, allows individuals to gradually withdraw their accumulated funds. It can be a good alternative if an investor has no pension or regular source of income at retirement. However, to aim that you get a decent amount of money at the time of withdrawal every month/year, investors must start investing as early as possible to build a substantial corpus in the long term.  

 Assets Under Management (AUM)

Assets Under Management (AUM) is a widely used metric in the financial industry, particularly in the context of asset management companies (AMCs). It represents the total market value of the assets an AMC manages on behalf of its investors. AUM is one of the significant indicators because it provides insights into the scale and growth of an AMC's operations. 

By knowing these terms, the investors can avoid being misled and can better determine that the mutual fund schemes they select will help serve their financial goals. 

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These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may consult their financial advisors and/or tax advisors before making any investment decisions. Investors should read the Scheme information documents carefully before making any investment decision. The past performance may or may not be sustained in future, and is no guarantee of any future results.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY