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Mutual Funds 101: Must-know Terms before Investing

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The topic – Mutual Funds, is in talks lately. With the help of technology, anyone can invest and keep track of their online investments using the internet. Thus, more people are moving towards investing. Mutual Funds are the safest and the most tax saving investment among the others. If you read articles about mutual funds but didn’t understand it’s because of the complex financial language, then this article is just for you.

Here are the important Mutual Fund terms explained:

AMC:

AMC stands for Asset Management Company. AMCs are the ones who pool the funds from different investors and further invest them to get profitable returns. ICICI Prudential AMC, HDFC AMC, Reliance Mutual Fund, Aditya Birla Sun Life AMC Ltd., are some of the top AMCs in the country. Always choose a reputed AMC while investing for better returns and low risk.

AUM:

AUM stands for Assets Under Management. AUM means the sum of all the assets/capital a mutual fund holds. One shouldn’t invest if the number of AUM is under Rs.500 crores. The higher the number of AUM, the more successful the fund house is. The fund house decides where the investments go. Higher AUM also means better returns.

SIP:

SIP stands for Systematic Investment Plan. SIP is a way to invest in mutual funds. SIP allows you to invest without having to pay a lump sum amount once, instead, you pay a certain amount periodically. A proper SIP plan makes your investments disciplined while yielding expected returns and you can invest from as small as 100 rupees per month.

NAV:

NAV stands for Net Asset Value. When a mutual fund collects money from various investors, it pools it and then invests it into stocks. It is not necessary that all of the sum collected is invested into the stocks. The value of stocks keeps changing and also that of the mutual fund as it is invested in stocks. A mutual fund is divided into units. The value of a single unit is called NAV. Thus, NAV tells us the value of a unit in the mutual fund.

Growth option and Dividend option:

Mutual funds are characterized in two types on the basis of delivery of the returns – Growth and Dividend. In the Growth option, the profits earned by the scheme are reinvested in the same scheme. You can realize your profits by selling the mutual fund units allocated to you. On the other hand, in the Dividend option, profits or dividends are distributed periodically. The dividend option offers a periodic return till the time you hold the mutual funds.

Entry load and Exit load:

Entry load is the percentage amount that is deducted while investing, as fees for the AMCs. Luckily, in India, zero entry load is practiced. Exit load is the percentage amount that is deducted while exiting or withdrawing from the mutual fund by the AMC.

Keep these terms in mind while taking a look at investments online.

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