Summary of "25 Mutual Fund Terms to Become a PRO in Mutual Fund Investing | Beginner to PRO in Mutual Funds"

Summary of Finance-Specific Content from the Video

“25 Mutual Fund Terms to Become a PRO in Mutual Fund Investing | Beginner to PRO in Mutual Funds”

Key Terms, Concepts, and Definitions

Mutual Fund A collection of assets such as stocks, bonds (government or corporate), commodities (e.g., gold), or hybrids (a mix of equity and debt).
- Equity mutual funds primarily invest in stocks.
- Debt mutual funds invest in bonds.
- Commodity mutual funds invest in commodities.
- Hybrid funds mix these asset classes.
- The number of stocks in a mutual fund can vary widely (30 to 250+).
AMC (Asset Management Company) Companies that manage mutual funds. Examples include ICICI, SBI, Aditya Birla, Kotak, UTI, Nippon India.
AUM (Assets Under Management) The total market value of assets managed by an AMC or a mutual fund.
Fund Manager Professionals responsible for managing the mutual fund portfolio, including asset allocation, stock selection, and timing decisions.
Expense Ratio The annual fee charged by the AMC for managing the fund.
- Direct mutual funds: up to ~1.5%.
- Regular mutual funds: up to ~2.5% (includes distributor commission).
- This fee is deducted before NAV calculation, reducing investor returns (e.g., a 13% gross return minus 1% expense ratio results in a 12% net return).
NAV (Net Asset Value) The per unit market value of the mutual fund’s assets minus liabilities, divided by the total number of units.
Regular vs. Direct Mutual Funds
- Regular: Purchased via distributors or banks; higher expense ratio due to commissions (~1% extra); suitable for investors seeking assistance but yields lower returns.
- Direct: Purchased directly via AMC or apps; lower expense ratio; better returns but requires investor knowledge and involvement.
Growth and Dividend (IDCW) Options
- Growth: Returns are reinvested; NAV grows over time.
- Dividend: Periodic payouts to investors. (A separate video is recommended for detailed explanation.)
Exit Load A penalty charged for redeeming mutual fund units before a specified period (commonly 1-2%).
- Applies to each installment in a SIP individually.
- ELSS (tax-saving funds) have a mandatory 3-year lock-in with no exit load.
Closed-Ended vs. Open-Ended Funds - Closed-ended: Have a lock-in period; cannot redeem before maturity (e.g., ELSS). - Open-ended: Can buy/sell anytime; exit load may apply if redeemed early.
Benchmark A reference index against which mutual fund performance is measured. Examples include Nifty 50 and S&P BSE Sensex. Mutual funds aim to beat their benchmark to generate alpha.
Index Examples - Nifty 50 (top 50 NSE companies) - Nifty 100 (large caps) - Nifty Mid-Cap 150 - Nifty Small-Cap 250 - S&P BSE Sensex (top 30 BSE companies)
Returns Metrics - Absolute Returns: Total growth between two points (e.g., ₹1 lakh to ₹1.6 lakh = 60%). - CAGR (Compounded Annual Growth Rate): Average annual return accounting for compounding over multiple years. - Rolling Returns: Returns calculated for every possible sub-period within a time frame, providing detailed performance insights. - XIRR (Extended Internal Rate of Return): Best for irregular investments/redemptions; accounts for timing and amount of each cash flow.
Volatility A measure of price fluctuation magnitude and frequency. - Small-cap funds are highly volatile. - Debt funds and fixed deposits (FDs) have low volatility. - Lower volatility implies lower risk.
Alpha The risk-adjusted excess return of a fund over its benchmark. Higher alpha indicates better performance at a given risk level.
Beta Measures a fund’s volatility relative to its benchmark. - Beta = 1: same volatility as benchmark. - Beta < 1: less volatile (lower risk). - Beta > 1: more volatile (higher risk).
Sortino Ratio Measures downside volatility (risk of losses). A higher Sortino ratio means better downside protection and lower risk.
Sharpe Ratio Measures risk-adjusted returns (reward per unit risk). A higher Sharpe ratio indicates better risk-reward efficiency.
PE Ratio (Price to Earnings Ratio) A valuation metric for stocks, ETFs, or mutual funds (based on holdings). - Lower PE ratio generally indicates better value. - Typical acceptable PE for mutual funds is around 25-30, varying by category. - High PE indicates potential overvaluation.
Liquidity The ease of buying or selling an asset at the desired price. - Mutual funds have high liquidity (can redeem anytime at NAV). - Stocks or property may have liquidity constraints.
SIP (Systematic Investment Plan) A method of investing fixed amounts regularly (e.g., monthly) in mutual funds, stocks, or ETFs. - SIP differs from lump sum investing (one-time large investment). - SIP in fixed deposits is called Recurring Deposit (RD).

Methodology / Framework Highlights

Expense Ratio Impact on Returns Returns shown by the fund are net of the expense ratio; investors receive returns minus fees automatically.
Using Benchmarks and Indices Evaluate mutual fund performance by comparing returns and risk metrics against appropriate benchmarks (e.g., Nifty 50 for large caps).
Returns Calculation
- Use CAGR for fixed, periodic investments.
- Use XIRR for irregular investments/redemptions.
- Use rolling returns for detailed performance analysis over various periods.
Risk Assessment Consider volatility, beta, alpha, Sharpe ratio, and Sortino ratio collectively to evaluate risk and risk-adjusted returns.
Investment Choice Decide between direct and regular mutual funds based on knowledge, time availability, and cost sensitivity.

Important Numbers and Timelines

Expense Ratio:
- Direct funds: up to ~1.5%
- Regular funds: up to ~2.5% (including ~1% distributor commission)
Exit Load Penalty: Typically 1-2%, applies on each SIP installment individually if redeemed before 1 year.
ELSS Lock-in: 3 years (no exit allowed before this).
Typical Mutual Fund PE Ratio Benchmark: 25-30.

Recommendations and Cautions

Beginners should avoid investing through distributors without understanding, as distributors may push schemes benefiting themselves rather than the investor.
Prefer direct mutual funds if you have the knowledge and time to manage investments, to save on commissions and improve returns.
Always compare mutual fund returns with their benchmark to assess performance validity.
Consider risk-adjusted metrics (alpha, beta, Sharpe, Sortino) before selecting funds; do not rely on returns alone.
Understand exit load conditions to avoid unexpected penalties.
Use SIP for disciplined investing but be aware that exit load applies to each installment individually.
Liquidity is generally not a concern with mutual funds; you can redeem anytime (except closed-ended funds like ELSS).

Tickers, Assets, and Instruments Mentioned

Indices: Nifty 50, Nifty 100, Nifty Mid-Cap 150, Nifty Small-Cap 250, S&P BSE Sensex
Mutual Fund Companies (AMCs): ICICI, SBI, Aditya Birla, Kotak, UTI, Nippon India
Asset Classes: Equity (stocks), Debt (government and corporate bonds), Commodities (gold), Hybrid funds
Investment Methods: SIP (Systematic Investment Plan), Lump sum investments
Funds: ELSS (Equity Linked Savings Scheme - tax-saving mutual fund with lock-in)

Disclaimers

The presenter shares personal experience and general knowledge; no explicit financial advice is given. Investors should do their own research and consider multiple parameters before investing. It is suggested to watch additional videos for detailed understanding of some terms (NAV, expense ratio, growth vs dividend options).

Presenter / Source

Presenter: Sangeet (name mentioned at the end)
The video is an educational guide aimed at beginners to help them understand mutual fund terminology and avoid common mistakes.

This summary encapsulates the finance-specific content, key metrics, methodologies, and investment considerations discussed in the video.