Ritesh Sabharwal CFP®

W.M.W #28: (Part 2/5): Mutual Fund Jargons Simplified - AMC, AUM, NAV, NFO, TRI, PTR etc.

Reading time: 5 minutes - December 27, 2025

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Hey Reader

Last week, I explained what mutual funds are to my 24-year-old cousin.

Cousin: "Okay, I understand the pooling concept and how Mutual fund operates". But you mention that there is a lot more to MFs world.
​Me: "Have you heard about terms like NAV, AMC, AUM, NFO, TRI, expense ratio etc?"
​Cousin: "Yes, have heard some of these in reels but don't really know what they actually mean.

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Let me simplify these terms which are important basic concepts to start investing in Mutual Funds.

By the end, my cousin understood every term and said: "Why do people make this sound so complicated? This is actually simple!"

Here's what I told him:

1. AMC & AUM: Who Manages Your Money (And How Big They Are)

AMC (Asset Management Company): Think of AMC as the company that runs mutual funds.
​Examples:

• SBI Mutual Fund → AMC is SBI Funds Management
• HDFC Mutual Fund → AMC is HDFC Asset Management
• ICICI Prudential MF → AMC is ICICI Prudential AMC

What they do:

• Pool money from investors (you and me)
• Hire professional fund managers
• Invest in stocks, bonds, securities
• Manage the fund day-to-day

Simple analogy: If mutual funds were schools, AMC is the principal who runs everything.

AUM (Assets Under Management): AUM = Total money an AMC manages
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Does bigger AUM = better fund? Not always. A large AUM indicates size and scale, but doesn't guarantee better returns.

What matters more:

• Fund manager's track record
• Expense ratio
• Consistent performance over 5-10 years
• Rolling Returns
• Risk the fund takes
• Downside protection and more

Of course these will be covered in the coming series.

2. NAV (Net Asset Value): The "Price" of a Mutual Fund

NAV is the per-unit price of a mutual fund scheme.

NAV = (Total Assets - Total Liabilities) ÷ Total number of units

Example:

• Fund owns stocks worth ₹100 crore
• Fund expenses: ₹1 crore
• Net assets: ₹99 crore
• Total units: 1 crore
• NAV = ₹99 crore ÷ 1 crore = ₹99 per unit

How NAV Works When You Invest

Day 1: You invest ₹10,000 when NAV = ₹50. Units you get: ₹10,000 ÷ ₹50 = 200 units
1 year later: NAV rises to ₹60 (fund grew 20%). Your 200 units × ₹60 = ₹12,000. Your profit: ₹2,000

Key Point: NAV Changes Daily

NAV fluctuates based on market performance:

• Stocks in the fund go up → NAV increases
• Stocks fall → NAV decreases

3. NFO (New Fund Offer): Should You Invest?

NFO = "Grand opening" of a new mutual fund (like an IPO for stocks).
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NFO Details:

• Period: Open for limited time (usually 15 days)
• Price: Fixed nominal price, usually ₹10 per unit in India
• After NFO: Fund starts trading, NAV changes daily

Should You Invest in NFOs? My honest answer: Usually, NO.

Why?

• No track record to evaluate
• No performance history
• Existing funds in the same category already have proven performance

Exception: Invest in NFO only if:

• It's a unique strategy not available in existing funds
• The fund manager has a strong track record in other funds
• You understand the investment thesis clearly

4. Benchmark: TRI vs. PRI (Why This Matters)

A benchmark index is used to measure fund performance—it's the yardstick to compare the fund's returns against a standard.
​Types of Benchmark Indices:

1. Broad Market Indices: S&P BSE SENSEX, Nifty 50
2. Market Cap Indices: S&P BSE Midcap, Nifty Smallcap 50
3. Sectoral Indices: Bank Nifty, NSE Pharma

Why this matters: TRI helps to compare apples to apples vs the earlier PRI which was excluding dividends.
​Example:

• Stock A grows 10% + gives 2% dividend
• PRI shows: 10% return
• TRI shows: 12% return

5. Mutual Fund Charges: What You're Actually Paying

Every mutual fund deducts charges. Here's what you need to know:

A. Entry Load (Distribution Expenses) - BANNED: Currently ₹0 (Entry load banned since 2009). Earlier, you paid ₹100-₹150 for investments >₹10K.

B. Expense Ratio (Annual Fee): Annual fee charged by AMC for managing the fund (includes management fee, operational costs, etc.). Deducted daily from NAV - Lower expense ratio = Better for you (more returns stay with you)

Current rates:

• Equity funds: 1.5%-2.25%
• Hybrid funds: 1.2%-2.0%
• Debt funds: 0.4%-1.5%
• Max: 2.25% (capped by SEBI, based on AUM)

C. Exit Load (Back-End Load): One-time fee charged if you sell before a specified holding period.
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Typical structure:

• Exit before 1 year: 1% fee
• Hold 1+ years: 0% fee (no exit load)

Pro tip: Hold funds for 1+ year to avoid exit load.

D. STT (Securities Transaction Tax): Charged on equity-oriented funds only at 0.001% on redemption (both direct and regular).
​Note: Applies even for SIP installments. Debt funds: No STT.

E. Stamp Duty: Charged at 0.005% on purchase of MF units (both direct and regular).

F. Transaction Charges (Distributor Level) - ABOLISHED.

As of August 2025, SEBI abolished transaction charges that were earlier paid to MF distributors (₹150 for 1st time investor, ₹100 for existing investors on amounts >₹10K).

6. Portfolio Turnover Ratio (PTR): How Often Fund Manager Trades

PTR = Percentage of portfolio holdings that were changed/bought/sold/turned over in a year.

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​PTR = (Number of securities bought or sold, whichever is lesser) ÷ Average AUM of the fund

For investors:

• High PTR: More buying/selling = higher costs
• Low PTR: Long-term holdings = lower costs

What my cousin Understood After This

After explaining these 6 concepts, he said: "So basically:

• AMC = Company running the fund
• AUM = How big the fund house is
• NAV = Price per unit (changes daily)
• NFO = New fund like an IPO of Mutual fund
• TRI = Better benchmark than PRI
• Charges = Expense ratio matters a lot
• PTR = How often manager trades

Me: "Exactly"

Understanding these terms doesn't make you an expert. But it removes the intimidation factor. When you understand:

• What NAV means
• What you're paying (expense ratio)
• How to compare performance (TRI, not PRI) and knowing the benchmark
• What PTR indicates

You're no longer dependent on agents or advisors to decode mutual fund jargon for you. You're in control.

And there is a lot more in Mutual fund universe. Next week, i will share the details about different types of mutual funds and in this MF series, will show you how to look at various parameters before selecting a fund as well.

Got questions about NAV, expense ratio, or anything else? Hit reply and ask - I read every email.

Connect with me on LinkedIn, I write every day to help you make smarter money decisions👇

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