Important Terminologies associated with Mutual Funds

1. Investment Objective: The investment objective of a mutual fund is similar to an

investing style or strategy. For example, a mutual fund with a growth objective aims at
picking companies that are growing rapidly and are expected to grow further over time.

2. Units: As we know equity investments are expressed in terms of a number of shares

and gold investments are measured in terms of grams, similarly investors investing in
the mutual fund are issued units that are derived from the amount invested by them.

3. New Fund Offer (NFO): When a mutual fund company invites subscription from
investors for its newly launched scheme, it is called NFO. New fund offers (NFOs) are
kept open for a stipulated period of time. But investors can invest in the fund even after
NFO.

4. Asset Management Company(AMC): An asset management company (AMC) is set

up to manage all the day to day activities, like collecting funds, enabling investor
transactions, and so on.
5. Net Asset Value (NAV): This is the price at which investors buy or sell units of the
scheme. It is the difference between a fund’s total assets and liabilities per unit. The
NAV of the schemes is calculated every business day after market hours.

6. Mark to Market: As mutual fund investments are market-linked, the value of its net
assets fluctuates depending on the prevailing price of its holdings. This daily swing in
the value of a mutual fund scheme, be it equity or debt, is referred to as mark to
market(M2M).

7. Systematic investment plans (SIP): SIP (Systematic Investment Plan) is just like a
bank recurring deposit wherein an investor needs to regularly invest a fixed amount of
money in a mutual fund. You can invest money weekly, monthly or quarterly as per your
convenience. It is a flexible investment avenue, which helps the investors to save
regularly instead of making a huge one-time investment.
8. Systematic withdrawal plan (SWP): Investors can plan a regular payout from the
balance held in the mutual fund investment by opting for a systematic withdrawal plan.
An SWP enables recurring redemptions from a scheme for a period of time at the
applicable NAV on the date of each redemption.
In an SWP, since the withdrawal happens at different NAV, the investor gets benefited
from the NAV volatility in the market. When the NAV is high, fewer units are redeemed
to pay out the same amount. Similarly, when NAV is low more units are redeemed to
pay out the same amount. Investors who want a regular income from their investments
can choose this option.

9. Systematic transfer plan (STP): If the customers want to switch from one scheme
to another, then he can opt for a systematic transfer plan (STP). This enables him to
redeem units from one scheme, called the source scheme (existing fund) and transfer it
to another scheme (known as the target scheme) in which investments are to be made.
This process will take place in the current NAV. This feature is only available if you
want to switch to a scheme offered by the same fund house.

10. Switch: A switch is a single transfer from one scheme or option of the same
scheme to another mutual fund scheme or option. The investor redeems units from one
scheme and simultaneously invests in another scheme of the same mutual fund. The
applicable NAV will depend upon the type of scheme.

Happy Investing!