Do You Know The Abc Of Mutual Funds Investing

Do you know the ABC of Mutual Funds Investing…

…the Terms every MF Investor should understand?

Buying a Mutual Funds (MF) has become very easy, however, investing in them is not that easy. Investors wanting to understand what they are buying into, what can they expect from a MF may be a daunting task. E.g. even if you do finalize on a particular scheme, you will have to choose a Regular plan or a Direct plan, Growth option or Dividend option, Dividend reinvestment or Pay-out. To top that, the MF industry uses its own jargon. It’s important for you to understand the MF terminologies used to be able to select and review your investments.

So, here is a rundown on the important terminologies you need to know before investing in a Mutual Fund:

Assets Under Management (AUM):

The money collected by an MF Scheme is invested across asset classes like stocks, debt Funds, gold and cash. The market value of these investments at any given time minus the MF’s liabilities is known as the Fund’s AUM. (E.g. If a Fund’s value of investments is Rs. 100 Cr and liabilities Rs 5 Cr., then AUM is Rs. 95 Cr.) Though, a large AUM denotes a Fund’s popularity and success, it also means restrictions on investing (Fund will have to invest mainly in large companies) and difficulty in replicating past high return performance.

Asset Management Company (AMC):

It is the Fund House or the company responsible for managing investors’ money, and in turn, all the MF schemes.

Benchmark Index:

A Benchmark is a popular index like the SENSEX, NIFTY or BSE 100, against which a Fund’s performance is gauged. A Fund is supposed to choose a Benchmark based upon the market-section it invests in. E.g. a Mid-Cap Fund may use NSE Midcap Index as its Benchmark. It makes sense to invest in an MF, only if it has consistently beaten its Benchmark performance over a 3-5 year period.

Corpus:

Every MF scheme collects money from investors, and this total money invested in the scheme is known as its Corpus. E.g. at the launch a particular scheme manages to collect Rs. 100 Cr from investors. By the end of one month, another Rs. 5 Cr invested by other investors. At the end of one month, the scheme’s corpus will be Rs. 105 Cr.

Direct Plan:

A Direct Plan means you investing directly thru’ an AMC/MF website. As there is no Distributor involved, returns generated by this plan will be higher by the percentage fees paid to a Distributor. We, at MoneyWorks4me, encourage investors to invest in Direct plans.

Dividend Scheme:

Choosing this option lets you receive Dividend (in the form of extra units) when an MF declares it. However, remember that this isn’t extra income, and it will decrease a scheme’s NAV by its dividend amount. Choose this option, only if you...........Read More