Key mutual fund related concepts

Before investing in a mutual fund (MF), you should be familiar with certain key concepts to understand the way MF industry works.

AMC (Asset Management Company): AMC is the fund house or the financial firm that manages the investors’ money. The mutual fund is initiated by a sponsor who acts alone or with a corporate entity to establish it. The sponsor appoints an AMC for managing the pool of investment.

NAV (Net Asset Value): NAV is the market price of a single unit of a mutual fund. When a fund launches an NFO (new fund offer), it is priced at Rs 10.

Entry load and exit load: Let us assume you are putting in Rs 10,000. If the entry load is 2%., you need to pay Rs 200. So Rs 9,800 is invested on your behalf in the fund. Now, let us say you are selling all the units of your fund. At that point of time the amount you invested is now Rs 15,000. If the exit load is 2%, you will pay Rs 300. So, you get back Rs 14,700. Generally, if a mutual fund charges an entry load, it will not charge an exit load, or vice versa. Ideally, check the load applicable before you invest in a mutual fund.