Mutual Fund complex meanings: XIRR, NAV, NFO, SWP, IDCW, CAGR, STP, AUM, 4Ps, TER, ABS
Mutual Fund complex meanings: Before investing in the market, every investor needs to have complete information about the company or fund. otherwise, it will take a little time for your money to sink. If we talk about mutual funds, then the investor needs to have in-depth information about the fund manager, what his plans are for the future of the fund, and whether his money is in safe hands or not. Many investors lose their money due to a lack of knowledge about the complex methods of mutual funds and the share market. In this article, we have discussed the complex meanings of Mutual Funds, which can be useful to both fresh and experienced investors to increase their returns manifold.
What is XIRR in Mutual Funds?
Managing correct, accurate and complex calculations in any type of investment including mutual funds is a challenge in itself and XIRR solves this problem in a jiffy. XIRR (Extended Internal Rate of Return) in mutual funds is used to calculate annual returns in simple language, XIRR is used when you invest in mutual funds at different times, and It calculates your annual returns accurately and accurately. It tells you how much profit or loss you have made annually on the money you have invested at different times.
XIRR keeps checking the amount and timing of your investment from time to time so that the returns can be more accurate and profitable. Let us understand this with an example: Believe that you invest ₹10,000 on 1st January, ₹15,000 on 1st June, ₹20,000 on 1st September, and then at the end of the year i.e. 31st December, you get ₹55,000 as returns. All these data can be organized only with the help of XIRR. It is a useful tool for investors who invest in mutual funds periodically, as it shows the true returns taking into account the timing of each investment and withdrawal.
What is NAV in Mutual Funds?
The term NAV in mutual funds often bothers new investors because to understand it one has to understand many other heavy words which makes it more difficult than before. NAV (Net Asset Value) in mutual funds is the per unit price of the fund i.e. the value of one unit. If you understand it in simple language, just as you get profit if the value of a share increases, similarly, the more the NAV increases in a mutual fund, the more profit you will get. NAV is calculated on every working day as NAV keeps changing every day. Let us understand this with an example:
Suppose the total assets of a fund are ₹ 100 Cr and the one-day expenses of this fund are ₹ 10 Cr, then the NAV of this fund will be ₹ 10. If you invest ₹ 20,000 at this NAV if later the NAV of this fund becomes ₹ 12, then the total amount of your investment will be ₹ 24,0000, that is, you will get a profit of ₹ 4,000.
What is NFO in Mutual Funds?
The full name of NFO is “New Fund Offer”. In this, fund means new mutual fund only. When a mutual fund company introduces a new fund and gives people an opportunity to buy units of the fund for the first time, then that fund is called NFO. Often, investment in a new NFO should be done thoughtfully and based on the past performance of the company, due to which the risk is similar to that of an IPO of a company that goes public for the first time.
Read Also: What is NFO? Best NFO Fund 2024
The money collected through NFO is invested in various assets like stocks or bonds by the mutual fund as per the scheme of the fund. After the NFO period ends, the fund starts functioning normally, investors should consider the fund strategy and risks before investing in NFO.
What is SWP in Mutual Funds?
SWP means (Systematic Withdrawal Plan) in mutual funds. It is a facility that allows investors to withdraw a fixed amount from their mutual fund investments at regular intervals (monthly, quarterly or selected intervals). This amount is decided during the investment. After withdrawing this amount, the remaining amount remains invested and keeps increasing. It also opens up many other investment avenues for the investor because you can start other investments with the SWP amount as per the market trend.
For example, if you invest ₹5 lakh in a mutual fund and choose to withdraw ₹10,000 every month through SWP, then you can withdraw an amount of ₹10,000 every month and the remaining amount remains invested and continues to grow. Keeps increasing.
What is IDCW in Mutual Funds?
What if apart from your returns, you also get additional profits in mutual funds which we can also call a bonus? this is it IDCW was earlier known as the “Dividend Option”. IDCW (Income Distribution Cum Capital Withdrawal) in mutual funds refers to a scheme where investors are paid dividends by the fund company along with the original investment. IDCW was earlier known as Dividend, however in April 2021, SEBI changed it from Dividend to IDCW.
Let us understand this with an example: If you get ₹ 5,000 as the total payout from the fund, ₹ 2,000 of this could be dividends from the company and ₹ 3,000 could be the total return on investment. This dividend itself is IDCW.
What is CAGR in Mutual Funds?
There is always a question in the mind regarding CAGR whether it represents simple interest or compound interest. Investors always have only one goal to make as much profit as possible and CAGR (Compound Annual Growth Rate) helps them in this.
CAGR (Compound Annual Growth Rate) in mutual funds measures the annual rate of return on an investment over a specific period, it calculates the returns with compound interest which is higher than the simple interest rate. It provides a smooth annual growth rate, making it easier and more profitable to understand the average performance of an investment over time.
For example, if you invest ₹1 lakh and it grows to ₹2 lakh in 5 years, the CAGR will be 14.87%, which represents the annual return rate. CAGR is the first choice of experienced investors because it easily explains higher profits with higher interest.
What is STP in Mutual Funds?
STP is among the useful features of mutual funds There is one. The full name of STP is Systematic Transfer Plan, which means that you can invest some amount of your fund in another fund for a fixed time interval. It is used when the investor feels that there is a possibility of more profits in a mutual fund in a short period or in a fixed period. You can also change it according to your investment strategy and transfer the fixed amount to the desired fund.
Let us understand this with an example. Suppose your portfolio includes both low-risk funds and high-risk funds. If an investment is ₹ 1 lakh in a high-risk fund, then ₹ 50,000 is invested in a low-risk fund. Now you want to transfer some amount from a high-risk fund to a low-risk fund. To transfer funds, here you will have to take the help of STP, according to which you can transfer one fund to another.
What is AUM in Mutual Funds?
Before making any investment in a mutual fund or any other type of investment, an investor should know about the plans and securities of the fund or company. So that investors can ensure whether the investment made by them is in safe hands or not? AUM works the same way for mutual funds.
AUM (Assets Under Management) in mutual funds refers to the total investment in the market by a mutual fund or asset management company (AMC) on behalf of its investors. AUM shows the transparency of the fund for the investor i.e. indicates the size and scale of the fund. AUM always advises investors to have a stable fund and a fund with high AUM so that their money remains in more safe hands.
What are the 4Ps of Mutual Funds?
in mutual funds, 4P Provides detailed information to the investor about the fund and helps in fund selection. Before selecting any mutual fund, it is very important to know about the objective of the fund its past performance and plans. 4P Makes investors aware. Here 4P means purpose, performance, portfolio and people. 4P In other words, there cannot be a better option than this to understand the basic structure of a fund, hence before selecting the fund, read the fund’s information.
- Objective
- Display
- Portfolio
- People
What is TER in Mutual Funds?
TER plays an important role in mutual funds or any other investment because from TER the investor knows what other expenses he will have to bear along with which. Many other expenses are included including management fees, administrative fees, distribution fees, audit fees, and legal fees. The higher the fund expenses, the more it will directly affect your net profit.
You can also compare your mutual fund with other mutual funds through TER and get assured. Before investing in the fund, be sure to know about the expenses of the mutual fund because these have an impact on your profits in some way or the other, hence low TER is generally better for investors than high TER.
What is ABS in Mutual Funds?
Most of the investments in mutual funds are made for the long term only, hence ABS (Absolute Return) is used to understand the net profit of the investment i.e. how much net profit we have received between the investment amount and the return. Apart from determining the net profit, ABS is also used to compare the net profit with other funds, which makes it easier to choose the fund. ABS provides ease of understanding even to a new investor as it does not require much technical knowledge of the market to understand the fund, hence it displays simple and easy-to-understand results.
For example, if you invest ₹1 lakh in a mutual fund and it grows to ₹1.2 lakh after one year, we get a net profit of 20% through ABS which is different from the principal amount.
Conclusion
In this article, we learned about many technical or complex words related to mutual funds which are important for both new investors and experienced investors to know. Today, in the digital era, the methods of investment have also changed in mutual funds are becoming the main investment option for people. In such a situation, it becomes very important to understand these complex words. All these tools or facilities help us understand the fund, through which we can reduce our financial losses manifold or save them altogether. If you like the post then please share it with your family and friends.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investments in mutual funds/NFO involve risks, including the potential loss of principal. Please consult a financial advisor before making any investment decisions.
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