Net Asset Value or NAV
NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day.
NAV calculation
The value of all the securities in the portfolio is calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.
Expense Ratio
AMCs charge an annual fee or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs. 1.50 for every Rs. 100 in assets under management. A fund’s expense ratio is typical to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size – so, the more assets in the fund, the lower should be its expense ratio.
Load
Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds. Currently, Mutual Funds do not charge any entry load to investors while purchasing but in case of early withdrawal, there is an exit load to most of the funds of 1% of fund value.
Open-Ended Funds
At any time during the scheme period, investors can enter and exit the fund scheme (by buying/selling fund units) at its NAV (net of any load charge). Increasingly, AMCs are issuing mostly open-ended funds.
Close-Ended Funds
Redemption can take place only after the period of the scheme is over. However, close-ended funds are listed on the stock exchanges and investors can buy/sell units in the secondary market (there is no load).
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