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So you're interested in investing in mutual funds, but the jargon-filled fact sheets leave you scratching your head ? Worry not ! This blog is your one-stop guide to understanding the key terms you'll encounter on a mutual fund factsheet, empowering you to make informed investment decisions.

Meet the People Behind Your Investment:

• Fund Manager: Imagine the captain of a ship. The fund manager is the person who steers the mutual fund, making investment decisions about where your money goes. They're usually part of a team with analysts who help them research and choose the best options.

 

Investing Your Money:

• Application Amount for Fresh Subscription: This is the minimum amount you need to invest for the first time in a particular mutual fund scheme.
• Minimum Additional Amount: Already a member of the mutual fund club? This is the minimum amount you need to invest further if you want to add more money to your existing holding.

 

Understanding Your Units:

• NAV (Net Asset Value): This is like the value of your house per square foot. It represents the worth of each unit of the mutual fund on a particular day, calculated after deducting all expenses. You buy and sell units based on the NAV.

 

Investing Regularly:

• SIP (Systematic Investment Plan): Imagine setting up a recurring deposit for your mutual fund. SIP allows you to invest a fixed amount periodically (monthly, quarterly, etc.), building your investment over time with discipline.

 

Exiting Your Investment:

• Exit Load: Consider this an exit fee applied by some mutual funds. It's a small charge as a percentage of your investment if you redeem your units before a certain lock-in period.

 

Comparing Performance:

• Benchmark: This is like a yardstick to measure how well your mutual fund is performing. It's usually a market index, like the Nifty or Sensex, which reflects performance of the whole market.

 

Knowing Your Investment Pool:

• AUM (Assets Under Management): This tells you the total market value of all the investments the mutual fund holds.

 

Where Your Money Goes:

• Holdings: Ever wonder what companies your mutual fund is invested in? The holdings section reveals the specific securities (stocks, bonds, etc.) the fund manager has chosen and the weightage they hold in the overall portfolio.

 

Understanding the Investment Type:

• Nature of Scheme: Mutual funds come in various flavours, each with a distinct investment objective. Equity funds aim for growth by investing in stocks, while debt funds focus on income and stability through bonds.

 

Measuring Volatility:

• Standard Deviation: Standard deviation measures how much a fund's performance deviates from its average. Higher deviation means more volatility.

 

Risk vs. Reward:

• Sharpe Ratio: This term helps you understand how much return you're getting for the risk you're taking. A higher Sharpe Ratio suggests the fund is generating better returns compared to its volatility.

 

Understanding Market Sensitivity:

• Beta: If the market goes up by 1%, how much can you expect your fund to go up? Beta tells you how much a fund's price movements tend to follow the market's movements. A Beta of 1 means the fund moves in line with the market, while a Beta greater than 1 suggests the fund might be more volatile than the market.

 

How Closely Does the Fund Follow the Benchmark?

• R-Squared: This helps you gauge how closely a fund's performance mirrors its benchmark index. A higher R-Squared indicates the fund's returns are largely influenced by the benchmark's movements.

 

Debt Fund Specific Terms:

• Rating Profile: When a mutual fund invests in debt instruments (bonds), it considers their creditworthiness as assigned by rating agencies. The rating profile depicts the overall credit quality of the debt securities held by the fund.
• Yield to Maturity (YTM): Imagine buying a bond and holding it until it matures. YTM tells you the internal rate of return you'd expect if you held the bond till maturity.
• Modified Duration: In simpler terms, it tells you how much a bond's price is likely to change if interest rates in the market fluctuate. Bond prices and interest rates have an inverse relationship. When interest rates go up, bond prices tend to go down (and vice versa)s
• Average Maturity: This is the average time it takes for the debt securities in the fund to mature, giving you an idea of the fund's interest rate risk (risk of price fluctuation due to interest rate changes).

 

Costs Associated with the Fund:

• Total Expense Ratio (TER): Think of this as the annual management fee of the mutual fund.