CA Rakesh Ishi
Understanding these components will help investors make better-informed decisions and assess the performance and suitability of mutual funds effectively.
1. Fund Manager
An asset management business professional is responsible for managing the scheme's investments. A member of a broader team of fund managers and research analysts.
2. Minimum Investment Amount
- For Existing Investors: The amount needed to invest in an existing mutual fund scheme.
- For new investors: The minimum amount necessary to subscribe to a mutual fund scheme.
3. Systematic Investment Plan (SIP)
Regular investments in a fixed sum are similar to recurrent bank deposits. For three years, invest ₹1000 in an equities fund on the 5th of each month.
4. Net Asset Value (NAV)
NAV refers to the entire asset value per unit of a mutual fund after subtracting all applicable fees. Calculated at the close of each working day. It represents the price at which an investor enters or departs a mutual fund.
5. Sales Charge (Load)
- Entry Load: Charged for purchasing mutual fund units. Added to the current NAV. For example, if the NAV is ₹100 and the entrance load is 1%, the entry price would be ₹101.
- Exit Load: Charged when mutual fund units are redeemed. Deducted from the current NAV. Example: If the NAV is ₹100 and the exit load is 1%, the redemption price is ₹99.
6. Beta is a measure of an investment's volatility compared to the market
- Beta < 1 indicates security is less volatile than the market.
- Beta > 1: The security's volatility exceeds that of the market.
7. Nature of the Scheme
Based on the investment objective and underlying investments.
- Equity Fund/Growth Fund: Aims to generate capital appreciation by investing in stock markets.
- Debt Fund/Income Fund: Aims to preserve capital by investing in debt markets.
8. Income Distribution and Capital Withdrawal (IDCW)
Amounts distributed may originate from investors' capital (the Equalization Reserve) and represent realized gains.
9. A Standard Deviation
It is a statistical measure of an investment's performance range. A higher standard deviation indicates greater volatility.
10. Assets Under Management (AUM)
It refers to the recent market value of investments handled by a mutual fund or investment firm.
11. Rating Profile
Shows the creditworthiness of the mutual fund's investments, as disclosed by ratings.
12. Yield to Maturity (YTM)
The expected return on a bond maintained until maturity. Expressed as an annual rate that includes the bond's market price, par value, coupon interest rate, and maturity date.
13. A Sharpe ratio
It is a risk-adjusted return measure calculated by combining the standard deviation and excess return to assess reward per unit of risk.
14. Holdings
The mutual fund's most recent statement of investments and securities. Displayed as a percentage of net assets, rupee value, or both.
15. Tracking Error
Measures how closely the portfolio returns match the benchmark return. Calculated as the standard deviation of the difference between portfolio and benchmark returns over a certain time period.
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