Mutual Fund Basics Part 3 - General Terms

In this part I am going to explain the general terms which is used in mutual funds.

1. Fund Category

Funds category determines by the fund’s portfolio. Large Cap Fund :- Invests in large cap company stocks. Mid Cap Fund:- Invests in mid cap company stocks. Short Term Fund:- Invests in money market instrument which gets mature in short duration of time. There are many more categories depending on the investment approach of fund.

2. Entry Load

           

Entry load is the charge investor has to pay while purchasing any mutual fund. Entry load deducted from the investment amount. Currently there are no entry load charges applicable on any mutual funds.

3. Exit Load

Exit load is the charge investor has to pay while doing redemption or switching the mutual fund units. Exit load deducted from the investment amount. Exit load depends on the type of fund, duration of the units allocation and vary from AMC to AMC. For most of the fund exit load is 0% if fund units held for more than one year. Mostly liquid funds have 0% exit load. Short term funds have 0% exit load for units held for more than 90 days.

4. Net Asset Value (NAV) 

Net asset value is the of the fund’s assets minus the liabilities. Below is the formula of NAV NAV = (Fund Assets – Fund liabilities)/Outstanding Shares.

5. Expense Ratio 

Expense ratio is the fee AMC charged for managing the fund. Expense ratio varies from the fund to fund. SEBI has set the maximum limit of 2.5% for the expense ratio.

6. Portfolio 

Portfolio is the list of fund’s assets in which investment has been done.