Monday, March 13, 2017

Mutual Fund Basics | Expense ratio, Entry load, Exit load, Benchmark

Basic terms of mutual funds

What is expense ratio in mutual funds in India ?

The expense ratio of a stock is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. For example if expense ratio of a mutuual fund is 1.7% per annum means that each year 1.7 % of the fund's total assets will be used to cover the above mentioned expenses.

What is sip in mutual fund in India

Systematic Investment Plan (SIP) is a financial planning tool that helps the investor to create wealth, by investing small sums of money every month, over a period of time. A Systematic Investment Plan (SIP) is a technique offered by mutual fund organisations to help investors invest regularly in a disciplined manner.

What is MIP in mutual fund in India

Monthly Income Plan (MIP) is a debt mutual fund scheme which invests a small portion of the funds (15-25 per cent) in equities. It offers regular income in the form of periodic (monthly, quarterly, half-yearly) dividend payouts to the investor. Due to the presence of equity, MIP returns can be volatile.

'Exit Load' Definition:

Mutual funds companies collect an amount from investors when they join or leave a scheme. This fee is generally referred to as a 'load'. Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme or the company as an investor

Entry load

Entry load is just similar to exit load. The fee charged by the mutual fund company to the investor while joining a scheme is known as Entry Load/

Benchmark in Mutual Fund

A mutual fund scheme's benchmark is an index that is decided by its fund house to serve as a standard for the scheme's returns. BSE Sensex and NSE Nifty are some of the familiar benchmarks for mutual funds that invest in large-company stocks.
A benchmark is just an measuring yardstick or standard against which something can be measured. For a fund, the benchmark is a stock market or bond market index whose returns the fund aims at beating.

For example, if the fund is a large-cap equity fund, it will choose a large-cap index as its benchmark. This can be the Sensex, the Nifty 50, or the BSE 100 or the Nifty 100. An MIP will have the CRISIL MIP Blended index as its benchmark. So taking the above example – the fund that lost 8.5% would be perfectly good if its benchmark lost 11.5%. Because an index is a nothing but a collection of stocks and securities, remember that the benchmark can also incur loses.