Terms Associated with Mutual Funds
While investing into Mutual Funds, you would often come across some financial terms which are very specific to the mutual fund industry. The most frequently used terms are detailed below :
- Units – is equivalent to the term ‘shares’ which is used in the context of Companies. A Mutual Fund ‘Unit’ represents a part ownership of the funds of the Mutual Fund investments. The value of a mutual fund ‘Unit’ is represented as a ‘NAV’. When an investor invests in a Mutual Fund’s scheme, he is alloted units reflecting the value of the his investments.
- NAV – represents the value of one unit of a mutual fund. NAV is computed on a daily basis by dividing the total value of investments held by a mutual fund by total number of units of the mutual funds. Returns in a mutual fund scheme is reflected by increase in the NAV price over a period of time.
- Loads – Loads are the terminology used in the mutual fund industry for charges levied either at the time of purchasing a mutual fund or at the time of selling.
- Entry Load – is a charge levied at the time of purchase of a mutual fund. Since 2010, these charges have been abolished. Hence no charges are now deducted by a fund house at the time of purchase.
- Exit Load – is a charge levied at the time of selling a mutual fund. Generally these charges are in the range of 0.5% to 3%. Equity funds generally levy 1% exit load on the total value of the investment being redeemed, if a person sells their units within 1 year of purchase.
- NFO – stands for ‘New Fund Offer’. A new mutual fund is offered to the public via a New Fund Offer. It is similar to the term IPO used for shares.
- Folio – reflects an account number with the mutual fund house. You can get your mutual fund details from a fund house by quoting your folio number. The same needs to be quoted while redeeming the fund.
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