The words you must know

Half of this exam turns easy once a handful of words are automatic. Learn them once, here, and the later chapters read themselves.

Begin at the base. Face value is the fixed reference value of one unit, most commonly ₹10. It is not what you pay today, it is just the number the scheme starts from. Multiply that face value by the number of units on issue and you get the scheme’s unit capital, its base capital. What you actually transact at is the NAV, the net asset value: take everything the scheme holds, value it at today’s prices, subtract its liabilities, and divide by the number of units outstanding. That single figure is struck once each business day, and it is the price at which you buy and sell.

Two ideas make that daily price possible and meaningful. Mark to market is the daily habit of valuing every holding at today’s market price rather than what was paid for it, without it, there could be no honest daily NAV. And recurring expenses, the scheme’s ongoing running costs expressed as the expense ratio, are deducted inside the scheme, which means the NAV you see is already net of them; you never pay them separately. Sitting above the whole pool is the AUM, assets under management, simply the total money the scheme (or the entire fund house) is running right now.

Finally, the one that trips people up: a load is a charge tied to entry or exit. In India the entry load is banned, you pay nothing extra to get in, though a scheme may still apply an exit load if you leave early, to discourage quick in-and-out trading. Fix these seven words in place and most exam questions become a matter of recognition, not calculation.