Mutual Fund Investment Glossary

Life is easier when in alphabetical order.

Mutual Fund Investment Glossary

Account Statement
A statement issued by a fund house providing the details of transactions and holdings of an investor in various schemes of the fund.

Annual Report
A report containing the yearly performance of the fund given to shareholders and investors.

Asset allocation
The allocation of total funds available in the portfolio in various asset classes like equity, debt, money market instruments etc.

The purchase of an asset in one market along with a simultaneous sale of the same asset in a different market to take advantage of difference in price.

Automatic Reinvestment Plan
The option available to mutual fund shareholders wherein fund income and capital gains distribution are automatically used to buy new shares.

Asset Management Company
An organization appointed by the Trustees of the Mutual Fund, which takes investment decisions for the mutual fund and manages the assets of the fund.

A series of periodic payments for a specific time frame.

Balanced fund
A fund that combines stocks, bonds and a money market component in a single portfolio.

A debt instrument that promises to pay interest and a fixed principal amount on maturity.

A standard against which the performance of a security or a mutual fund can be measured or compared.

A measure of the fund's volatility (systematic risk) in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM) which calculates the expected return of an asset based on its beta and expected market returns.

Close-ended Scheme
A scheme that issues a fixed number of shares/ units for a specified period of maturity.

The total amount of money invested by all the investors in a scheme.

An organization, usually a bank that holds the securities and other assets of a mutual fund.

Earnings on an investment’s earnings. Over a period of time, compounding can produce significant growth in the value of the investment.

Capital Gain
The profit that is realized when the price of a security held by a mutual fund rises above its purchase price and the security is sold.

Commercial Paper
Short-term money-market instruments, issued by large, creditworthy corporates.

Debt Funds
A fund that invests in debt instruments like bonds and money market instruments.

A portion of profit that a mutual fund distributes to its unit holders or shareholders.

Dividend Plan
A plan where the fund distributes its accumulated income from time to time as and when the dividend is declared.

Dividend Re-investment
A scheme where dividend from a particular investment is re-invested as opposed to being paid out.

The practice of investing across a number of securities to reduce risk.

Dividend Distribution Tax
A tax payable by a debt-oriented mutual fund before dividend is distributed to the unit holders.

Dividend History
The track record of dividends declared by a fund.

Dividend Per Unit
Total amount of dividend declared by a fund for a scheme divided by total number of units issued to all the investors.

Dividend Plan
In a dividend plan, the fund distributes its accumulated income from time to time to the investors as and when the dividend is declared.

Dividend Reinvestment
In a dividend reinvestment plan, the dividend is reinvested in the scheme itself and is not paid out to the investors. i.e. instead of receiving dividend in cash, the unit holders receive units allotted to them at the ex-dividend NAV.

Dividend Warrant
It is an instrument issued by companies/ mutual funds to an investor for the purpose of payment of dividends.

Dividend Yield
It refers to the dividend earned per unit of a scheme at the prevailing per unit price.

Dollar-cost averaging
Also known as Rupee-cost averaging. A practice where a fixed amount of money is invested at regular intervals regardless of whether the security prices are rising or declining.

Duration estimates how much a bond's price fluctuates with changes in comparable interest rates. If rates rise 1.00%, for example, a fund with 5-year duration is likely to lose about 5.00% of its value. Other factors also can influence a bond fund's performance and share price. A bond fund's actual performance may differ.

Equity funds
Funds that mainly invest in stocks i.e., equity (over 65% of its assets in equity stocks).

Exit Load
A fee charged by the fund when an investor redeems (sells) units from the fund.

Expense Ratio
The fund’s cost of doing business as disclosed in the prospectus. It is expressed as a percentage of its assets.

Face Value
The original issue price of one unit of the scheme.

Fund Manager
An individual who makes all the decisions regarding investments of a mutual fund scheme.

Fund of funds
All-in-one funds that invest in other mutual funds.

Gilt Funds
Funds that mainly invest in government securities of different maturities.

Government Securities
Securities created and issued by the Government (Central/ State) that are sold to the public.

Growth Plans
A plan where the income earned is re-invested in the scheme. The main aim is on capital appreciation.

Dividend short term & long term gains paid to a mutual fund investor.

Income Fund
A fund whose main objective is current income rather than growth of capital. These funds invest in fixed income securities that pay regular interest.

Index fund
A fund whose investment objective is to match the investment performance of a large group of publicly traded common stock represented in a stock market index.

The rate at which the general level of prices for goods and services are rising.

Inflation risk
The risk that a segment of an investment returns may be eliminated by inflation.

Issue Date
The date on which a security is deemed to be issued or originated.

Junk Bond
A speculative bond with higher credit risk.

Liquid Fund
A fund that invests in short- term instruments like treasury bills, commercial paper and certificate of deposit with maturity less than 91 days.

A charge by the fund when an investor buys or sells units in the fund.

The ease with which an investment can be bought or sold. A person should be able to buy or sell a liquid asset rapidly with no adverse price impact.

The time period during which the investment amount cannot be withdrawn from the scheme it is invested in.

Management fee
The amount paid by the fund to the asset manager for its services.

The date on which the principal of a security becomes due and payable to the security holder.

Mutual fund
An investment company that pools money from investors and invests that money into a collection of securities which includes stocks, bonds, and money-market instruments as defined in the Scheme Information Document of the mutual fund.

Money Market Instruments
Instruments that include commercial paper, treasury bills, GOI securities(less than 365 days), certificate of deposit, etc.

A legal instrument given by a borrower to the lender entitling the lender to take over pledged property if conditions of the loan are not met.

Net Asset Value
The per share value of a mutual fund found by subtracting the funds liabilities from its assets and dividing by the number of shares outstanding.

No load fund
A fund that does not charge any load for buying or selling its units.

Net Assets
The total value of a fund's cash and securities less its liabilities or obligations.

Offer Document
The official document (Scheme Information Document / Statement of Additional Information) issued by mutual funds prior to the launch of a fund describing the features of the proposed fund to its potential investors. It contains information required by SEBI pertaining to issues such as investment objective and policies, services and fees.

Offer Price
The lowest price that a seller is willing to accept from a prospective buyer. In the case of a mutual fund with a sales charge, this price is the net asset value (NAV) plus the sales charge. In the case of no-load funds, it is the NAV. The price at which units can be bought from a fund.

Opportunity Risk
The risk that a better opportunity may present itself after you have already committed your money elsewhere.

Open-end Scheme
A scheme where purchase and sale of units is done on a continuous basis.

A collection of securities owned by a fund that may include stocks, bonds and money market instruments.

Purchase price
The price at which a mutual fund's units can be purchased. The asked or offering price means the current net asset value per unit.

Rate of Return
The total proceeds derived from the investment per rupee initially invested. Proceeds must be defined broadly to include both cash distributions and capital gains. The rate of return is expressed as a percentage.

Record Date
A cut-off date announced by the mutual fund, for corporate benefits like dividends, rights, bonus etc.

Buying back or cancellation of the units by a fund on an on-going basis or on maturity of a scheme.

Redemption fee
A fee charged by a limited number of funds for redeeming, or buying back, fund units.

Redemption Price
The price at which a mutual fund's units are redeemed (bought back) by the fund. The redemption price is usually equal to the current NAV per unit.

The act of returning money to an investor by the fund. This could be on account of rejection of an application to subscribe units or in response to an application made by the investor to the fund to redeem units held by him.

Registrar/Transfer Agent
The institution or organization that maintains a registry of unit holders of a fund and their unit ownership.

Buying back/ cancellation of the units by a fund on an ongoing basis or for a specified period or on maturity of a scheme. The investor is paid a consideration linked to the NAV of the scheme

Repurchase Date /Period
In the case of close-ended schemes, the specified date on which or period during which the investor can redeem units held by him in the scheme before the maturity of the scheme.

Repurchase price
The price of a unit (net of exit load) that the fund offers the investor to redeem his investment.

Risk Adjusted Returns
The expected returns from an investment depend upon the risk involved in the investment. For the purpose of comparing returns from investments involving varying levels of risk, the returns are adjusted for the level of risk before comparison. Such returns (reduced for the level of risk involved) are called risk-adjusted returns.

Rupee Cost Averaging
An investment approach based on investing equivalent amount of money in a fund at regular intervals.

Sales price
The price at which mutual fund offers to sell its units to investors.

Sector Funds
A fund which invests only in stocks belonging to a specific sector. For example, IT, Pharma, Infrastructure etc.

An instrument evidencing debt or equity in a common enterprise in which a person invests on the expectation of financial gain. The term includes notes, stocks, bonds, debentures or other forms of negotiable and non-negotiable evidences of indebtedness or ownership.

Sharpe Ratio
A risk-adjusted returns measures, used to normalize absolute returns generated by a fund. Mathematically, the ratio is measured by dividing the excess returns generated by a fund, arrived by subtracting risk free return from the fund’s absolute return, with the volatility i.e., standard deviation, of the fund.

The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. Also, the difference between the bid and ask price for a security.

An investor who owns shares of a mutual fund.

The parent organization that contributes atleast 40% of the net worth of the asset management company (AMC).

Systematic Investment Plan (SIP)
A plan which enables an investor to have a designated sum of money transferred regularly from his or her bank account to the fund account.

Systematic Transfer Plan
A plan that allows the investor to give consent to the fund to periodically transfer a certain amount from one scheme to another.

Systematic Withdrawal Plan
A plan that allows an investor to withdraw a designated sum of money from the fund account.

Standard Deviation
A risk measure, which is used to determine the degree to which a fund's return fluctuates around its mean returns. It is also known as the volatility of the fund and is the most common risk measure used in arriving at risk-adjusted returns.

Tracking Error
The negative difference between the returns generated by a fund and the benchmark it tracks.

Board of Trustees or the Trustee Company who hold the property of the Mutual Fund in trust for the benefit of the Unitholders.

Total Return
A measure of funds performance that includes all elements of return - dividends, capital gain distribution and changes in net asset value.

Transfer Agent
An organization appointed to prepare and maintain registry of unitholders of the fund and their unit ownership.

Portfolio turnover is the rate at which a mutual fund manager buys or sells securities in a fund. A high turnover rate, which normally signals a strategy of capitalizing on opportunities to sell at a profit, has the potential downside of generating short-term capital gains. That means the gains are usually taxable as ordinary income rather than at the lower long-term capital gains rate. Rapid turnover may also generate higher trading costs, which can reduce the total return on a fund.

A measure indicating one share of the assets of that particular scheme.

Unit holder
A person who holds units in a fund or under any plan of the Scheme.

An organization that acts as the distributor of an initial offer share to broker/dealers and investors and undertakes to subscribe to any under-subscription of the offer.

Calculation of the market value of the assets of a mutual fund scheme at any point of time.

Value Date
The date on which a foreign exchange transaction or a cash movement takes place. It can be used interchangeably with settlement date.

Value Stocks
Stocks that are considered to be undervalued based upon such ratios as price-to-book or price-to-earnings (P/E). These stocks generally have lower price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth rates than growth stocks.

Vertical Integration
This is where a company merges or takes over other companies in the same supply chain. If a shoe manufacturer, takes over his supplier it would be vertical integration.

In investing, volatility refers to the ups and downs of the price of an investment. The greater the ups and downs, the more volatile the investment.

Voluntary Plan
A flexible plan for capital accumulation, involving no specified time frame or total sum to be invested.

Volatility Measures
Volatility measures the variability of historical returns. Relative Volatility, Beta, and R"2" compare a portfolio's total return to those of a relevant market, represented by the benchmark index. Standard Deviation is calculated independent of an index.

Withdrawal Plan
A service offered by mutual funds allowing shareholders to receive income or principal payments from their account at regular intervals.

Yield Curve
A graph depicting the relationship at a given point in time between yield on a bond vis-�-vis the maturity of the bond. The yield curve is positive when long-term rates are higher than short-term rates and negative or inverted when the long-term rates are lower than the short-term rates.

The compounded annual total return expected on a bond investment if it is held to maturity. To realize this return, you must be able to reinvest each interest payment at a rate equal to the yield to maturity.

Rate of return on a security determined by its coupon and other features expressed as a percent and annualized.

Zero Coupon bond
A bond where no periodic interest payment is made. These bonds are redeemed at face value at the maturity date.

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