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What are Mutual Funds and 10 Vocabulary Terms

A mutual fund is a type of investment where many investors pool their money to earn returns on their capital over a period of time. This collection of funds is managed by a fund manager or portfolio manager. It is their job to invest this pool in different securities like bonds, stocks, gold, or other assets and in turn, provide returns to the investors.

The gains and losses on the investments are shared collectively by the group that initially pooled their money keeping in mind the proportion of their contribution.

As a beginner, the terms associated with mutual funds might be daunting to see, hear, and read. To ease your worry, we have created a list of 10 terms related to mutual funds with their meanings so that the next time you come across them, they will seem less intimidating.Asset Allocation:

Diversification of investments into various kinds of assets in order to minimize the risk.

Automatic Investment Plan:

An investment plan wherein a fixed amount is deducted every month from investor’s bank account and is invested in the chosen mutual fund.

Benchmark:

It is an unmanaged group of securities the performance of which is taken as the standard against the performance of other investors. Some examples would be BSE Sensex and NSE Nifty

Bond:

A debt investment where the investor lends money to a company or government for a given period of time and interest rate.

Capital Growth:

The change in net asset value per share of a mutual fund’s securities which is caused due to an increase in its market value.

Duration:

It is a measure of how sensitive a fund is to the shift in interest rates. The longer a fund’s duration, the more vulnerable it will be to interest rate fluctuations.

Growth Plan:

Mutual fund that has long-term capital growth as the primary objective.

Investment Yield:

Yield of an investment is related and depends on the risks and prospects of the investment.

Lock in period:

The period for which the investment is restricted from being sold by the investor.

Risk:

It is the measure of the ability of an investor to withstand market fluctuations.

Also Read: What is Finance? Types of Finance

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