Key Terms in Mutual Funds You Must Know (NAV, Expense Ratio, AUM, etc.)

If you are new to mutual funds, the words and abbreviations can feel confusing. Learn these simple, important terms to read fund factsheets, compare funds, and make smarter investment choices.

NAV (Net Asset Value)

NAV is the price of one unit of a mutual fund. It is calculated as: (Total value of assets – liabilities) ÷ Total number of units. When NAV goes up, the value of your investment rises.

Expense Ratio

This is the annual fee charged by the fund house to run the fund. It covers management fees and operational costs. A lower expense ratio means fewer fees eating into your return.

AUM (Assets Under Management)

AUM is the total money that the fund manages. A large AUM can signal popularity, but always check performance and fund strategy — size alone isn't enough.

Entry Load & Exit Load

Entry load is a fee at the time of purchase (rare today). Exit load is a charge when you withdraw before a specified period—designed to discourage short-term trading.

Benchmark

The benchmark is an index the fund is measured against (for example, Nifty 50 for many equity funds). Use the benchmark to judge whether the fund is performing well versus the market.

Portfolio

The portfolio is the collection of all the investments (stocks, bonds, cash) the fund holds. A diversified portfolio reduces risk compared to a single-stock investment.

SIP (Systematic Investment Plan)

A SIP allows you to invest a fixed amount regularly (monthly, quarterly). SIPs help build discipline and reduce timing risk through rupee-cost averaging.

Tip: Before you invest, check the fund’s factsheet for NAV history, expense ratio, AUM, top holdings, and benchmark. Those numbers tell you a lot about how the fund is run.