A mutual fund is an investment program. In which money pool from various individuals (investor) and managed by a skilled fund manager.
Types of mutual funds:
Some important words in mutual funds.
1. AMC (asset management company):
When a person invests in a share market, he has to manage his own money which has a lot of risks, so it is more preferred to invest in a share market through mutual funds because the money invested in mutual funds by the fund manager Is managed which reduces the risk significantly
Therefore, the manager who manages the money of mutual funds is appointed by the company. That company is known as Asset Management Company
- Axis asset management company
- Icici prudential asset management company
The property, cash & cash equivalents, inventories, etc held by the company together with equity and liabilities are known as assets of the company.
- Assets = Equity + liabilities
- Equity refers to ownership in any organization
- Liabilities refer to debt
Suppose there is a land that costs a lakh rupees, a man wants to buy it but he only has Rs 60000, so he took a loan 0f 40000Rs. from a financial institution to buy the land which would be considered as liabilities for that man. And the money that the man already has, will be known as Equity
3. AGR: (Annual growth rate)
The annual growth rate is the average increase in the value of an individual investment, asset, portfolio or cash flow over a period of one year. It is determined by taking the numerical mean of a specified or calculated year-over-year growth rate.
4. Dividend fund:
- In this option, the fund’s profiters are paid monthly, quarterly, or annually as dividends. When a dividend is declared, the fund’s NAV comes off.
- When a dividend is declared, the investors invest their amount in more units by not giving them profit cash. In this way, the number of units of investors also increases.
5. Growth funds:
- Compounding interest gain
- In this option, if the fund makes a profit, that amount is reinvested. If the fund is profitable, then the NAV goes up, but if the fund is lost, then the NAV also goes down. So when the fund is profitable it is right to withdraw your money or sell the investment.
6. Exit load:
- Mutual fund companies collect an amount from investors when they leave before maturity date then they will charge. This charge is called an exit load charge.
Note: exit load refers to charge for premature withdrawals
7. Expense ratio:
- All mutual funds fees and charges, including distributor commissions, are part of the expense ratio.
- The charge or fee charged for managing mutual funds is called the expense ratio.
8. NAV: (Net asset value)
- Value per unit of mutual funds
- Investors buy/sell @ NAV price
- Profit = (NAV value @ redemption time- NAV value @ investment time) ✕ total units
IDFC Tax advantage ELSS fund
- NAV value @ investment time = 60.44 Rs.
- Total No. Of buy units = 100
- Then investment amount = 60.44 × 100 = 6044 Rs.
Assume after 1 year
- NAV value @ Redemption time = 70.44 Rs.
- Total no. Of units = 100 (units always constant)
- Then Redemption amount = 100 × 70.44 = 7044 Rs.
Profit = Redemption amount – Investment amount = 7044 – 6044 = 1000Rs
% of Return = (Redemption amount – Investment amount) ÷ Investment amount × 10= (7044 – 6044 ) ÷ 6044 × 100= 16.54% per year.
9. NFO (New fund offer):
- A new fund offer occurs when a fund is launched by the mutual fund company
- The return is depending upon the performance of a fund manager, market condition, and investment object.
- Maybe a high expense ratio
Existence NAV better than NFO because of in existence NAV we analyze return performance, with the help of a previous record, but on the NFO return performance totally depend upon fund manager, investment object and market condition
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