Mutual funds jargons that you should know before investing

Mutual funds are thrilling! But for beginners, it’s a glossary to match pace with. The ideal procedure for mutual funds involves selecting the best sip or analysed funds and then pouring in your dime and efforts. This picture that you see is popping numerous jargons that might be overwhelming for a beginner. Jargons like beta & alpha, benchmark, coupon payment, credit risk, dividend payout etc. do sound like a great deal of stress. But worry not, here are a few jargons that should set you off for your mutual funds’ journey.

Asset Allocation:

Sounds complicated right? Actually, it’s really simple. Let’s take an example where you are the person who is investing in stocks, mutual funds, cryptocurrencies and NFTs. All these kinds of investments can be addressed as asset classes. With asset classes, you have allocated your money in 4 different areas. This may sound similar to diversification, but let’s make this clear, they aren’t the same thing. Asset allocation is the act of yours investing in various asset classes.

Asset Management Company (AMC):
Hold this! Who’s AMC and how is it going to help me with investments? To put it simply, AMC is a firm that invests the collected/pooled money from clients, into various asset classes like mutual funds, stocks, real estates, bonds and more. Why do we need an AMC? That’s because they do the thinking, analysis, chart projections, numbers and data all for you and help you yield better returns.

Benchmark Index:

Today there are the best mutual funds apps in India that represent the “benchmark index”. A benchmark index acts as a reference point for performance comparison. Let’s understand this with an example. You have just invested in a mutual funds scheme and you are curious to know if your selected scheme is performing up to the mark. Hence a benchmark index gives you an indicator of comparison. SEBI has made it mandatory to set a benchmark for every investment product and schemes in the market. Here are a few common benchmark indices – S&P BSE, S&P BSE 200 & S&P BSE 500.

Net Asset Value:
 The net asset value (NAV) gives a picture of the net value of an entity. This is how it is calculated – (total value of the entity’s assets – the total value of its liabilities). In simpler terms, NAV is a price at which the scheme units are bought or sold. NAV indicates the market value of the investment fund’s unit. So when the value of your investment increases, your scheme’s NAV is increasing too.

There are many jargons to cover but for now, understanding a few basic ones should help you spark the learning of mutual funds. Did you know you can save taxes with top ELSS (Equity Linked Savings Scheme)? Mutual funds are more than a thrilling investment. Moreover, investing is done while studying constantly about the schemes and funds.