Understanding the key vocabulary used under Systematic investment plans

We know  what SIP means and how it works. It is a way of investing a fixed  amount in a regular basis for a  predetermined period. But it is quite often that we get confused with the basic terms that are used by professionals while discussing SIP.  When you start investing under SIP there are a few terms you will often come across, it is important that you understand these terms to get better clarity and to avoid any confusions.  Some of the most common terms used in SIPs are Units, NAV, redemption, AMU and AMC. 

SIP Vocabulary and its meaning 

Here are some of the basic terms that are used under systematic investment plans and their meanings: 

A unit is one of the most common terms used in SIPs. Holdings of mutual funds are represented in form of unit. Every time you invest an amount in mutual fund units based on the amount and price of one are added to your account. 

NAV or net asset value in common word means the amount you have used to buy or sell your mutual fund. NAV decides the unit of your mutual fund. NAV also indicates the actual market value of the fund hence it helps you to keep the track of the performance of your systematic investment plan.  NAV is calculated on daily basis hence it is  mandatory for all the mutual funds to publish their NAV on every business day. 

Redeeming your SIP or redemption means selling your mutual fund partially or completely and liquidating your asset value. You can redeem your fund to meet your financial need, during the peak performance of your fund or to transfer your investment to another scheme or investment. You can redeem your SIP funds whenever you want without waiting for their maturity. 

AMU or asset under management is the total market value of the investment in a mutual fund scheme that is managed by financial companies known  as an asset management company or AMC. It is basically used to compare the performance of your plan.  

It is always wise  to do your homework before you decide to venture into any new scheme or business and understanding the meaning of vocabulary is the first step, this will build your confidence and also give you better understanding of what you are getting into and you will not sound like a newbie who can be fooled.