The amount of jargon here is staggering. I will try to write what I understand here
Regular vs Direct Funds
This one is simple, Regular funds are the funds where you pay a higher expense ratio since you go via a broker. Direct
meaning there is no broker and you will directly go to the AMC (Asset management Company).
Expense ratio measures how much of a fund’s assets are used for administrative and other operating expenses. One thing
to note is that expense ratio’s generally tend to be stable. A fund with low expense ratio stays low for a good amount
Types of funds
- Debt: These funds are maintained by Banks. When someone like the government or a private sector organization takes
money from a bank, they take it at a fixed interest rate over a period of time. So, what is basically happening is
that banks pool money through mutual funds and lend it to various gov/private org. and the return on the fund is the
interest rate the org pays the bank back. This is usually a safe bet since most of the companies don’t completely
default. But if they do, then the fund loses money, which means you lose on your returns/money.
Equity: These funds just straight up invest in stocks, there are a couple of types here like
- Large Cap
- Small Cap
- Mid Cap
- Multi Cap
I think most of these names are self explanatory.
- There is another type of Fund called ELSS (Equity linked savings scheme) , it is mandatory that 80% of the
investments are in equity. The simple reason why people prefer equity is that the returns are usually higher. But
also it means risk is higher.
- Growth funds have stocks which are high in terms of their growth but less in terms of the amount of dividend
(money paid occasionally by the company to the shareholder). You might find companies you might have never heard
of, but the manager of the fund thinks are a good growth investment.
- Index Funds: They invest in the index they refer to (SENSEX / NIFTY). No manager, so no expense.
- Hybrid: They do both Equity and debt funds
Terms to understand
- NAV (Net asset value) : It is the funds per share market value. In simpler terms, all the (assets -
liabilities) / number of shares outstanding .
- Exit Load : The amount of the fund you have to pay to the fund management organization if you exit the fund before
the stipulated time.
- CAGR (Compound Annual Growth Rate) : Compound annual growth rate (CAGR) is the rate of return that would be
required for an investment to grow from its beginning balance to its ending balance, assuming the profits were
reinvested at the end of each year of the investment’s lifespan. (I need to fully understand this yet)
- How is a mutual fund unit calculated?