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Your Personal Mutual Fund Glossary: Decoding Mutual Fund Terms

We’ve got FOMO if we think there are parts of the money world that we don’t know about! We realized that GMTA, and thought you might experience this fear too! TBH, there is a lot of ground to cover, and the journey to financial literacy is perennial. But, being the GOAT means never giving up. You see what we’re trying to do here right? Oh well! IYKYK.

Today, we’re rounding up some of the most common abbreviations associated with investing, to help further your financial education! Let’s dive right into it –

  1. AMFI Association of Mutual Funds in India – The AMFI is a non-profit organization that plays the role of a regulatory authority for all mutual fund investing in the country. It was incorporated in August 1995, and as things stand today, 42 Asset Management Companies (AMCs) that are registered with SEBI are also members of AMFI. The AMFI operates under the guidelines of SEBI (decoded here). There are a number of functions that fall under the purview of the AMFI. These include maintaining ethical standards in investing, protecting the interests of investors, sharing pertinent information with investors, and regulating the conduct of investment providers.

  2. AMC Asset Management Company – An AMC is a company that uses pooled funds from its clients, to invest across asset classes including stocks, bonds, real estate, and more. AMCs are more popularly known as money management companies. For certain individuals with high net worth, AMCs also create centralized portfolios, encapsulating the details and growth rates of their pensions, hedge funds, mutual funds, and ETFs (decoded here). From the investor POV, AMCs can be useful as they eliminate the need for minimum investment requirements since your money is going to be pooled with several other investors’ capital to buy financial assets. 

  3. AUM Assets Under Management – AUM refers to the total market value of the assets that are managed by an individual or a company on behalf of clients (investors). So, for instance, an AMC with a higher AUM might indicate more experience and a higher net worth, than one with a lower AUM. The AUM can be an important performance metric for you to keep in mind when deciding who, or which money management company to approach for your personal finance management. 

  4. NAV Net Asset Value – If you log onto any mutual fund trading website or platform, you will see that with each fund, there is an NAV mentioned alongside that fund. The NAV of a mutual fund represents the price of one unit. So, if you want to invest ₹5,000 today, and your selected mutual fund has an NAV of ₹50 today, then you will be able to buy a total of 100 units of said fund. Easy peasy!

  5. NFO New Fund Offer – An NFO is a first-time subscription that offers a mutual fund scheme to the public (investors). Launched at a fixed price (usually of ₹10), an NFO is usually up for grabs for a limited time period of 15 days. It offers investors a fresh new fund to invest in; one that hasn’t yet been affected by any market fluctuations. NFOs can offer investors an avenue for diversification and can even offer tax considerations in some cases (yay!). 

Whether you’re a newbie investor or an investing vet, these 5 terms will keep cropping up in your investment journey. Understanding these terms will bring you a step closer to financial literacy – so keep them in mind!

And that brings us to the last 3 abbreviations we’ve got for you. Investing in mutual funds requires systematic planning. Luckily for investors today, there are already systematic plans in place, each with its own outcome and objective, to help you invest regularly while also making big gains. Let’s look at this as a comparative table – 

 

SIP

STP

SWP

Full Form

Systematic Investment Plan

Systematic Transfer Plan

Systematic Withdrawal Plan

Definition

SIPs allow you to invest in installments of small amounts, rather than investing a huge lump sum in one go. SIPs leverage the rules of rupee cost averaging and compounding interest to provide investors with the most lucrative earnings possible.

STPs are a popular investment strategy that allow you to manage your funds by transferring money from one mutual fund scheme to another. This transfer of funds takes place periodically, to reallocate your funds to a scheme that offers higher returns.

SWP is an investment scheme where you can arrange for a periodic withdrawal from your SIPs. The amount you want to withdraw, the frequency at which you want to withdraw, and when you want to withdraw – is entirely up to you. 

 

These three systematic plans for mutual fund investing can help you create a winning strategy for wealth creation! These are tried and tested ways of ensuring that you simply have no excuse to not invest! They promote consistency in your investments, which is the key to unlocking the full potential of your financial portfolio.

PS –

Mutual fund investing, all by itself, can be lucrative for making gains.

But, mutual fund investing, together with the right information and knowledge, is a tool for wealth creation.

Bonus PS –

A Millennial Glossary
(Not a glossary of millennial terms, but rather a glossary of terms we’ve used in the intro which millennial readers might struggle with! 

FOMO – Fear Of Missing Out

GMTA – Great Minds Think Alike

TBH – To Be Honest

GOAT – Greatest Of All Time

IYKYK – If You Know You Know

FAQs

  • What is AMFI?

The AMFI is a non-profit organization that plays the role of a regulatory authority for all mutual fund investing in the country. It was incorporated in August 1995, and operates under SEBI guidelines.

  • What are SIP and SWP?

SIPs allow you to invest in installments of small amounts, rather than investing a huge lump sum in one go. SWPs, on the other hand, arrange for a periodic withdrawal from your SIPs. 

  • What is NAV?

The NAV of a mutual fund represents the price of one unit, on a particular day.

  • Can AUM help me pick an AMC?

Yes. You should consider the AUM of any AMC while deciding whether or not you want to invest through it. A higher AUM indicates a larger market value of all the funds that an AMC is handling.

  • What is an NFO?

An NFO is a first-time subscription that offers a mutual fund scheme to the public (investors). Launched at a fixed price (usually of ₹10), an NFO is usually up for grabs for a limited time period of 15 days. 

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