Demystifying Mutual Fund Jargon: NAV, Expense Ratio, and More

Assets Under Management (AUM)  
The meaning of assets under management is the total market value of the investments a fund manages.

Asset Management Company (AMC)  
An Asset Management Company (AMC) is the mutual fund company that manages the schemes on behalf of investors. It takes care of research, selecting securities, building and monitoring portfolios, and ensuring compliance with SEBI regulations. In return, the AMC charges a management fee, which is included in the mutual fund expense ratio.

Alpha  
Alpha in mutual funds is the extra return a fund generates compared to its benchmark, adjusted for risk. A positive alpha means outperformance; a negative one shows underperformance compared to the benchmark index. 

Annualized Returns  
Annualized returns standardize investment performance across different timeframes. They express the average yearly return, even if the investment was held for more or less than one year. This makes it easier to compare mutual funds or other investments over different periods.

Applicable NAV  
The Applicable NAV in mutual funds is the Net Asset Value at which your purchase or redemption of units is processed. It depends on the cut-off time set by SEBI Regulation.

Asset Allocation  
A strategy of dividing investments across asset classes like equity, debt, or gold. Diversification through asset allocation helps manage risk.

Balanced Funds  
In mutual fund jargon, funds that invest in both equity and debt are called balanced funds. They fall within the category of hybrid funds and aim to provide moderate returns with relatively lower risk compared to pure equity funds.

Beta  
Beta in mutual funds measures a fund’s sensitivity to market movements. A beta over 1 means more volatility than the market, while less than 1 means lower volatility.

Capital Gains  
Capital gain refers to the profit made from selling mutual fund units at a higher price than the purchase NAV. Capital gain tax on mutual funds applies, depending on whether the gains are short-term or long-term and the type of fund in question.

An interesting blog on capital gains tax on mutual funds - an important topic for short-term and long-term mutual fund investors

Corpus  
Corpus is the total money pooled from all investors in a mutual fund scheme. The fund uses this pooled corpus to invest in different assets.

Cut-Off Time  
In the context of mutual fund jargon, cut-off time refers to the deadline by which mutual fund transactions need to be submitted for the purpose of  considering for being allotted  any specific day’s NAV. 

Diversification  
Diversification is a risk management strategy in mutual funds, where the fund spreads investments across different asset types and/or categories/sectors to lower exposure to market risks.

ELSS (Equity Linked Savings Scheme)  
ELSS is a type of tax-saving equity mutual fund scheme with a 3-year lock-in period. Investments you make into an ELSS fund qualify for tax deductions under Section 80C of the Income Tax Act. However, general mutual fund taxation rules apply to capital gains. 

Exit Load  
Exit load is the fee charged when you redeem your mutual fund units before a specified time (). 

Expense Ratio   
Mutual fund expense ratio is the percentage of assets used for management and administrative costs. To calculate the expense ratio of a mutual fund, follow this formula:  

Expense Ratio = Total Expenses ÷ Average Assets Under Management 

Fund Manager  
A professional appointed by the asset management company (AMC) to make investment decisions in line with the scheme’s objectives. The fund manager is responsible for making allocations and investment decisions on behalf of the investors. 

Growth Option  
In mutual fund jargon, a growth plan refers to a mutual fund plan where profits are reinvested to grow the net asset value instead of paying dividends.

IDCW (Income Distribution–cum–Capital Withdrawal)  
Earlier known as the “dividend option,” IDCW in mutual funds refers to the portion of profits or capital paid out to investors from a scheme. Unlike the growth option, IDCW provides payouts at intervals chosen by the fund, but these are not guaranteed and depend on the fund’s performance.

Index Funds  
Funds that replicate a stock market index like Nifty or Sensex. Index funds are passively managed and have lower expense ratios.

Investment Objective  
The investment objective defines the primary goal of a mutual fund scheme, such as capital appreciation, income generation, or a mix of both. The investment objective guides the fund manager’s strategy and helps investors choose schemes that match their financial goals.

Liquidity  
Liquidity is the ease with which your mutual fund investment can be converted into cash. 

Lock-in Period  
The minimum time you must stay invested before redemption. For example, ELSS funds have a lock-in period of three years.

NAV (Net Asset Value)  
The net asset valuation is the per-unit value of a mutual fund, calculated by dividing the fund’s total assets minus liabilities by the number of outstanding units. The formula of NAV is:

NAV = (Total Assets – Total Liabilities) ÷ Total Number of Units Outstanding.

For example, if a fund has ₹100 crore in assets, ₹5 crore in liabilities, and 10 crore units, the NAV is ₹9.5 per unit.

NFO (New Fund Offer)  
NFO in mutual fund jargon refers to the first-time subscription period when a mutual fund is launched. Units are usually offered at a face value (typically ₹10).

Our content series on Mutual Fund Jargons covers an in-depth guide to know whether New Fund Offer (NFO) a good investment option? 

Portfolio  
The complete set of securities held by a mutual fund. It shows how the fund is diversified across sectors and asset classes.

Risk-Adjusted Returns  
Risk-adjusted returns are the returns evaluated after considering the level of risk taken. Using risk-adjusted returns of a fund can help you compare funds more meaningfully than absolute returns.

Scheme Information Document (SID)  
The Scheme Information Document (SID) is the most detailed official document of a mutual fund scheme. It provides comprehensive information on objectives, asset allocation, investment strategy, risk factors, fees, and fund manager details. Reading the SID helps you understand exactly what the scheme offers and the risks involved.

SIP (Systematic Investment Plan)  
A method of investing fixed amounts at regular intervals in mutual funds. Instead of putting in a lump sum, SIPs help you invest gradually, benefit from rupee cost averaging, and build financial discipline.

STP (Systematic Transfer Plan)  
A Systematic Transfer Plan (STP) lets you move a fixed sum of money at regular intervals from one mutual fund scheme to another—. 

SWP (Systematic Withdrawal Plan)  
An SWP allows investors to withdraw a fixed amount from a mutual fund at regular intervals, creating a steady income stream.

Find more about Systematic Withdrawal Plan and how to start SWP in mutual funds.  

XIRR  
XIRR in mutual funds stands for the Extended Internal Rate of Return. Understanding XIRR’s meaning in mutual funds is important because it calculates annualized returns for irregular cash flows involving multiple cashflows, like SIPs, making it more reliable than simple return methods. Many investors rely on an online XIRR calculator for SIP returns, as it simplifies the calculation and shows accurate performance.