First we will understand Net Asset Value (NAV)
NAV is the total asset value 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 in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the NAV.
Open- and Close-Ended Funds
Open-ended FundsAt 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.2) Close-Ended FundsRedemption 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).
Expense Ratio
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, and other likewise charges. A 1.0% expense ratio means the AMC charges Rs1. for every Rs100 in assets under management.A fund's expense ratio is typically 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 / exit load or both) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.
Important documents
Two essential documents that focus the fund's strategy and performance are
1) Prospectus (legal document) and
2) Shareholder reports (normally quarterly).
NAV is the total asset value 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 in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the NAV.
Open- and Close-Ended Funds
Open-ended FundsAt 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.2) Close-Ended FundsRedemption 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).
Expense Ratio
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, and other likewise charges. A 1.0% expense ratio means the AMC charges Rs1. for every Rs100 in assets under management.A fund's expense ratio is typically 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 / exit load or both) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.
Important documents
Two essential documents that focus the fund's strategy and performance are
1) Prospectus (legal document) and
2) Shareholder reports (normally quarterly).