Mutual Fund Terms: NAV, SIP, AUM & More

Before investing in a mutual fund, you’ll come across a few terms again and again: NAV, expense ratio, exit load, SIP, AUM and benchmark.

Each tells you something different about the fund: what one unit is worth, what you may pay, how you can invest, where the money goes and how the fund’s performance is measured.

So, if you’re learning the mutual fund basics, here is everything you must know.

What are the Most Important Mutual Fund Terms for Beginners?

Before you start comparing mutual funds, it is important to understand this mutual fund terminology.

Let’s look at seven essential mutual fund terms and what they mean. 

1. NAV Meaning: What Is One Unit Worth?

NAV stands for Net Asset Value.

It is the per-unit value of a mutual fund. NAV is calculated using the total value of the fund’s assets after deducting its liabilities and dividing it by the number of outstanding units.

For example, if a mutual fund has an NAV of ₹50, one unit of that fund is valued at ₹50.

Remember: A lower NAV does not mean a mutual fund is cheaper or better.

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2. Expense Ratio: What Does the Fund Cost?

The expense ratio represents the recurring cost of managing and operating a mutual fund scheme.

It is expressed as a percentage of the scheme’s assets and is reflected in its NAV.

1. Low Expense Ratio (e.g., 0.5%): The fund charges lower management fees, around ₹50 annually on ₹10,000, leaving more of your returns with you.
2. High Expense Ratio (e.g., 2%): The fund charges higher management fees, around ₹200 annually on ₹10,000, which can reduce your overall returns.

3. Exit Load: Is There a Cost to Exit Early?

An exit load is a charge that may apply if you redeem your mutual fund units within a specified period. For example, a scheme may charge a 1% exit load if units are redeemed within one year.

The exit load and applicable period can vary across schemes, and some schemes may not have one.

4. SIP: How Can You Invest Regularly?

SIP stands for Systematic Investment Plan. It is a method of investing a fixed amount in a mutual fund at regular intervals.

For example, instead of investing ₹12,000 at once, you could invest ₹1,000 every month through an SIP. 

Here are some important SIP terms for beginners, explained simply:

SIP Term	Meaning
SIP Amount	The fixed amount you invest regularly, such as ₹500 or ₹1,000.
SIP Frequency	How often you invest, such as weekly, monthly or quarterly.
SIP Date	The scheduled date on which your SIP investment is made.
SIP Tenure	The period for which you plan to continue your SIP.
SIP Instalment	Each individual payment made through your SIP.
SIP Top-Up (Step-Up SIP)	An option to increase your SIP amount periodically, such as from ₹1,000 to ₹1,500.
SIP Cancellation	Stopping future SIP investments. Existing mutual fund units remain invested unless redeemed.
SIP Mandate	An authorisation allowing scheduled SIP payments to be debited automatically from your bank account.

5. AUM: How Big Is the Fund?

AUM stands for Assets Under Management.

It represents the total market value of the assets managed by a mutual fund scheme or Asset Management Company (AMC).

AUM gives you an idea of the size of the assets being managed. However, a higher AUM does not automatically mean better performance.

6. Portfolio: Where Is the Money Invested?

A mutual fund portfolio is the collection of investments held by a scheme.

Depending on the type of fund, its portfolio may contain shares, bonds, government securities, money-market instruments or other eligible assets.

7. Benchmark: What Is the Fund Compared Against?

A benchmark is an index or standard against which a mutual fund’s performance can be compared.

For example, an equity mutual fund may use the Nifty 50 or another relevant market index as its benchmark.

The benchmark gives you a reference point for understanding how the fund has performed over a particular period.

Mutual Fund Glossary: Common Terms at a Glance

Here’s a quick reference to some important mutual fund terms and their meanings.

Term	Simple Meaning
AMC (Asset Management Company)	A company that manages mutual fund schemes and investors’ money.
AUM (Assets Under Management)	The total market value of assets managed by a fund or AMC.
NAV (Net Asset Value)	The per-unit value of a mutual fund.
Expense Ratio	The annual cost of managing and operating a mutual fund scheme.
Benchmark	A market index used to compare a fund’s performance.
SIP (Systematic Investment Plan)	A method of investing a fixed amount regularly.
SWP (Systematic Withdrawal Plan)	A facility to withdraw money from a mutual fund at regular intervals.
STP (Systematic Transfer Plan)	A facility to transfer money periodically between mutual fund schemes.
Exit Load	A charge that may apply when you redeem units within a specified period.
NFO (New Fund Offer)	The initial subscription offer of a new mutual fund scheme.
IDCW (Income Distribution cum Capital Withdrawal)	An option under which a mutual fund may distribute payouts to investors.
Alpha	A measure of a fund’s performance relative to its benchmark after accounting for market-related risk.
Portfolio	The collection of investments held by a mutual fund.

What are the Different Types of Mutual Funds?

Mutual funds are divided into different categories based on where they invest and their investment objectives. 

Here are the main types of mutual funds:

Type of Mutual Fund	What Does It Mean?
Equity Mutual Funds	Invest mainly in company shares and aim for long-term capital growth.
Debt Mutual Funds	Invest in fixed-income instruments such as government securities and corporate bonds.
Hybrid Mutual Funds	Invest in a mix of equity and debt instruments to balance growth potential and risk.
Index Mutual Funds	Track a market index, such as the Nifty 50, by investing in securities that reflect the index.
Solution-Oriented Mutual Funds	Are designed around specific goals, such as retirement or children’s future needs.
Other Mutual Funds	Include categories such as Fund of Funds (FoFs), which invest in other mutual fund schemes.

Remember: Different mutual funds carry different levels of risk, costs and investment requirements. Once you understand what a fund is worth, what it costs, where it invests and how its performance is measured, the rest of the terminology becomes easier to follow.

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