The World of Investments and Money

Wednesday, December 13, 2006

Some Mutual Fund jargons explained

Mutual Fund : It's a fund by which people can indirectly invest in the market. These funds normally invest a part of total capital into equity market. You invest into the fund and share its profit/loss. The fund managers look after the money so there's less hassle for individual investors. But it comes with a some fee you have to pay the fund for managing it for you. This means that if you invest directly in the market and hold the same portfolio of shares as the fund, you can make more as there's no fee. There are other factors to affect investments. MFs normally enjoy lower taxes on returns on investment than direct traders. Also, fund managers are experts in their fields with a large capital so they can chose a very diversified portfolio that results in growth over a period.

NAV - Net Asset Value : It represents the value of one unit of a fund. If there are 100 investors each holding say 10 units in a fund which has a total value of Rs 10000, then NAV would be 10000/100*10=10

Dividend option : The fund pays divident periodically to its investors. This makes the NAV go down but the investors get some cash. Overall wealth of an investor remain same before and after getting dividend.

Growth option : In this option the fund doesn't give dividend but reinvests the capital periodically. The goal of this kind of fund is to increase the wealth of the investors by long term investment in the market.

The same fund scheme can have both Dividend and Growth options mentioned by (D) and (G) respectively after the scheme name.

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