Basic terms first time mutual fund investors need to know

If you are a first time investor and interested in investing in mutual funds, here are some terms you need to understand.


Asset Management Company (AMC)

An Asset Management Company is the fund house or the company that manages the money of a mutual fund. The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A sponsor is a person who acts alone or with a corporate to establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the functioning of the mutual fund. Various schemes with different objectives are floated under the umbrella of one parent mutual fund.

Schemes of mutual fund

Mutual funds offer a wide variety of schemes with different investment choices and different risk appetite, financial goals and time horizon.


The Net Asset Value is the price of a unit of a mutual fund scheme. When a fund comes out with an NFO of a scheme, it is priced at a fixed rate per unit for all the subscribers of NFO. Later, depending on the market value of the investments, NAV could rise or fall.

Exit Load

This is a fee that is charged to investors when you sell the units of a fund. The load is represented as a percentage of the NAV.


This is the term given to the basket comprising all the investments made by the scheme of a mutual fund as well as the amount held in cash.


Let's assume a very small scheme of a mutual fund has an initial investment of 1,000 units and each unit is worth Rs 10. Hence, the total amount with the scheme is Rs 10,000. This is referred to as the corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs 12,000 (Rs 10,000 + Rs 2,000).
The total amount invested (Rs 12,000) is called the corpus or the total amount of money invested in the scheme.

Assets Under Management (AUM)

Assets Under Management is the total market value of all the investments currently being managed by the mutual fund. Let's say the corpus of one scheme is Rs 12,000 and the other scheme is Rs. 10000 but, due to a rise in the price of the shares it has invested in, the value of the units has increased to Rs. 15000 and Rs. 11000 respectively. So the total market values of the mutual fund is now Rs. 26000 (Rs 15,000+Rs. 11000). This figure is referred to as AUM.

Diversified equity mutual fund

This is a mutual fund that invests in stocks of various companies in various sectors and market capitalization.

Equity Linked Saving Schemes (ELSS)

Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act. To avail of the tax benefit, your money must be locked up for a statutory period of three years.

Balanced fund

A fund that invests in both equity (shares) and debt (fixed return investments) as per its investment objectives is known as a balanced fund.

Debt fund

These are funds that invest in fixed return investments like bonds, government securities etc. A liquid fund is one that invests in money market instruments; these are fixed return investments of a very short tenure with the residual maturity of not exceeding 91 days.


A new fund offer (NFO) is the first time subscription offer for a new scheme launched by the asset management companies (AMCs).

Systematic Investment Plan (SIP)

A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units.

Expense ratio

A mutual fund house also incurs annual expenses (such as administrative costs, management fees, etc.) to manage the schemes. Expense Ratio, as capped by the regulator, is the percentage of assets that go towards these expenses. Eg: Every time the fund manager churns his portfolio, he pays a brokerage fee, which is ultimately borne by investors as one of the components of an Expense Ratio.

Fund Manager

A fund manager is responsible for implementing a fund's investing strategy and managing its portfolio. A fund can be managed by one person, by two people as co-managers, or even by a team of three or more people.


Dividends are the investor's portion of scheme’s realized profit. Dividend may or may not be paid depending on various circumstances.


An Investor Education & Awareness Initiative.


Investors should deal only with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions". Refer for details on completing one-time KYC (Know Your Customer) process, change of details like address, phone number etc. and change of bank details etc. For complaints redressal, either visit or SEBI's website


Disclaimer – This information is for general information only and does not have regard to particular needs of any specific person who may receive this information. L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates; does not guarantee/indicate any returns/and shall not be held liable for any loss, expenses, charges incurred by the recipient. The recipient should consult their legal, tax and financial advisors before investing. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved.

The returns from mutual funds are subject to market fluctuations while returns on savings account, fixed deposits and bonds are fixed.


Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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