Investing in mutual funds is one of the best options you can do when you don’t know how to directly invest in stock market. However, just like any other investments available today, you should study it first before you actually put your hard-earned money to it.
In any investments that you will make, it is very advisable to make a good planning and investigation about what are you going into. Careful study and research will really help a lot and will save you a lot of time and money!
So in this article I listed the most common terms used in mutual funds. This list is just the basic, if you want to learn more deeply, you can visit other sites dedicated solely to mutual fund investing.
Common Terms in Mutual Funds
If you know the various terms in mutual funds, it will be easy for you to understand how it works. Here’s some of the most common terms.
Prospectus is the the mutual fund guidelines for new and old investors. It is a document where you can find who manages the fund (fund managers), where the fund is invested, who are the major shareholders of the fund, how the fund is invested and many more facts about the mutual fund.
Net Asset Value per Share (NAVPS) is the price of the mutual fund. Normally, the starting NAVPS of a new mutual fund is P1.00. To compute for the total amount of money you have in the mutual fund, you simply multiply the current NAVPS with the number of share you are holding.
3. Fund Manager
A fund manager is the one that manages the fund. He is the one that makes decision where and how to invest the money. He is an expert in investing in securities, bonds or commodities.
4. Investment Company
The investment company is the issuer of the mutual fund and manages the mutual fund. The fund manager is under the supervision of the IC.
All legitimate investment company that manages mutual fund is monitored and authorized by Securities and Exchange Commission (SEC).
6. Sales Load
It is the fee any investor should pay every time he makes investment or buy the mutual fund. Typically, sales load ranges from 1-3% of the money deposited. For example, if you invested P10,000, the sales load will be p300 so only p9,700 will be used to buy MF.
7. Exit Fee
When you invest in mutual fund, there is a holding period before you can withdraw or sell your MF without fee. Usually, the holding period is within six months after you invested in MF. Before the six month period, you will pay an exit fee normally ranging from 0.5- 2% if you want to withdraw your MF or sell your shares.
It is an act of withdrawing the money invested in mutual fund by filling up redemption forms instructing the investment company to sell the investor’s share of MF.
9. Equity Fund
Equity fund is a type of mutual fund invested in stocks or securities. When you buy equity fund, you invests indirectly in the stock market.
10. Balanced Fund
It is a type of mutual fund where the funds are invested in stocks and bonds. It is a combination of high risk and low risk investments.
11. Fixed-Income Fund
This is a type of mutual fund where the funds are invested in fixed-income instruments like government bonds, treasury bills and other fixed-income investments.
12. Money Market Fund
This is a kind of mutual fund where the funds are invested in short-term debt securities.
The list above shows only the most common terms in mutual fund investing. Is there any terms or words you know that is not included in the list? Just leave your comment below and I will include it in this article. Thanks!