Glossary

Account Statement

A summary of the financial activity of a specific account for a definite period provided by any financial institution

Adjusted NAV

An NAV which is adjusted in view of perceived or suspected differences between the market value and book value

Annual Report

A report comprising a comprehensive description of the company's activities in the whole financial year

Applicable NAV

AN NAV applied for a particular transaction based on the cutoff time specified by a mutual fund

Asset Allocation

Allocation of overall corpus or principal among different assets like real estate, bonds, shares, etc.

Asset Management Company (AMC)

A company that is registered with the SEBI to manage assets of a mutual fund and make investment/divestment decisions for it

Annualized Return

Returns generated from a fund on a compounded basis over the year which also indicate the performance of that fund

Benchmark

A set standard which is used as basis to measure the performance of a mutual fund, investment manager or a security

BSE Sensex

Stands for Bombay Stock Exchange Sensitivity Index and is a value-weighted index comprising 30 stocks from well-established, listed companies

Balanced Funds

A fund which make considerable investments in both debt and equity

Back-End Load

A redemption charge levied on investors to discourage them from withdrawing money from a particular mutual fund

Capital Gains

A gain or profit earned on the sale of an asset as a result of the increase in the asset's value

Close-Ended Fund/Schemes

A fund listed on the stock exchange which has investors committing their money for a particular period

Current Load

The present load structure applicable to any fund

Current Yield

Ration of coupon interest to market price of the bond, actually prevailing in the market. Formula: Annual Interest/Current Market Value=Current Yield (%)

Custodian

An entity prescribed by the SEBI, responsible for safekeeping of assets or the fund's securities

Corpus

All funds that are investible with a mutual fund scheme at any point of time;

Credit Risk or Default Risk

A risk of facing failure in payment of interest or repayment of principal by the issuer of a fixed income security

Dated Security

A long-term instrument under debt with a fixed redemption date

Debt Fund

A fund which specifically invests in debt securities, e.g. Government securities, holding less risk and possibility of steady income

Dematerialization

A process mandated by the SEBI to convert some physical or paper shares of a company to the electronic form which are accessed by the investor in his Depository Participant (DP) account

Depository Participant

A body authorised to be a part of the Dematerialization process and maintain accounts of the investors

Diversification/Spreading the Risk

Having a portfolio with investments spread across different industries and asset classes, thus reducing the overall risk

Dividend Plan

A plan where the Trustee with the scheme decides to declare the surplus earnings as dividends

Dividend Payout

An option within a Dividend Plan where the declared dividends are actually given to the investors

Dividend Reinvestment

An option within a Dividend Plan where the declared dividends are reinvested into the same scheme instead of being given to the investors

Dollar Cost Averaging

Dividing the investible amount into equal parts and using each equal portion to buy at even intervals to benefit from lower prices

Duration

A tool to measure the average holding period of assets in a debt scheme used to gauge the scheme's tendency to yield

Entry Load

A load charged to the investor when he invests in a particular fund which results in a price higher than the NAV of that fund

Expense Ratio

Calculation of the percentage of the fund's assets which have been paid as expenses over the year

Exit Load

A load charged to the investor when he redeems units from a particular fund which results in a price (expressed as %) lower than the NAV of that fund

Efficient Portfolio

That portfolio which ensures minimum risk for the expected returns or maximum returns at the given level of risk

Equity/Growth fund

A fund with an investment objective of capital appreciation and which specifically invests in equities

Face Value

The issue price of one unit of a given scheme originally; usually Rs. 10

Factor Funds

Also known as Style Funds, these consider investing primarily in a particular factor or style perceived in the market, e.g. Mid-cap funds, Growth funds, etc.

First In First Out

An assumption under a method of accounting where the units first bought are sold or redeemed first

Fixed Income Security

That security which yields a fixed interest at regular intervals, e.g. Bonds, debentures, etc.

Front-End Load

A charge levied on the investor of a fund to fulfil administrative expenses or commissions to brokers

Fund Manager

A person responsible for taking all investment decisions regarding the usage of the funds for a particular scheme

Gilts/Government Securities

Securities issued and guaranteed, sometimes unconditionally, by the Central and/or State Government

Gilt Funds

A fund that substantially invests in Government securities and treasury bills which ensures enough liquidity and safety of principal

Growth Plan

A scheme which retains or reinvests earnings of the investor; in a way, accumulating all the returns

Guaranteed Returns

Under restrictions from SEBI, this clause assures returns whereas any returns from a scheme are subject to various investment and market risks

Income Fund

A fund which primarily invests in debentures, high dividend shares and bonds to give investors wanting steady income, a share of dividend from its earnings

Index Funds

A fund with a portfolio mirroring a more popular index like BSE Sensex or Natex as these investors believe in the efficiency of the market

Indexation

An index linked to the wholesale price index as specified by the government has specified an index The indices of two years (year of purchase and the year of sale) are used for the purpose of computing capital gains tax. The purchase price is multiplied by the index of the year of sale and the product is divided by the index of the year of purchase. This indexed purchase price is deducted from the sale price to calculate the indexed capital gains. The tax rate of 20% is applied to the indexed capital gains.

Initial Offer Period

The specific days on which the first subscriptions to the units of a particular scheme are allowed

Inflation

A gradual increase in the prices of general goods and services over a period of time

Inflation Risk

The possibility of the devaluation of an asset due to inflation

Interim Dividend

A payment (sometimes two) made as first instalments of a declared dividend

Liquid Funds

Those funds that invest capital in more short-term avenues like treasury bills, Commercial Paper (CP), call markets, etc.

Liquidity

The ease and pace at which an asset can be bought or sold or and at which an investor can transform unit holdings to cash

Lock-in period

A period after an investment made in fresh units, during which the units cannot be redeemed by the investor

Load

A charge levied on an investor while buying or selling units in a specific fund

Management Fee

The fees (in %) that are used for the management of the funds under that scheme and as prescribed by SEBI

Market Risk

A risk intrinsic in a market which suggests a risk in the price of a security because of the altering economic, political and/or market conditions

Money Market

The market which has securities for less than a year, i.e. short-term, e.g. Call Money and Treasury Bills

Mutual Funds

A company or trust that invests money pooled from unit holders, into different types of securities like bonds, stocks and other avenues as specified in the fund documents

Net Asset Value (NAV)

A crucial performance indicator of a specific fund, it is calculated as: Total Assets (-) Expenses (/) No. of Outstanding Units

No Load

A fund that does not charge any investor while buying or selling units allowing him to transact at the given NAV

Non-Performing Assets (NPA's)

According to SEBI regulations, those assets that do not give returns are called NPA's

Offer Document

An official document issued before launching a fund, stating the characteristics of that fund or scheme for prospective investors, along with SEBI regulations

Open-Ended Fund/Scheme

A fund where buying or selling of units is allowed on a continuous basis at prices related to the given NAV

Redemption

A transaction where an investor is paid an NAV-linked price on his withdrawal of investment from a fund or scheme

Risk Adjusted Returns

Returns adjusted for their level of risk, before striking a comparison between various schemes

Record Date

A cutoff date announced by the mutual fund for eligible investors availing corporate benefits such as rights, bonus, dividends, etc.

Rating

Evaluation by rating agencies of the credit risk involved in fixed income securities

Sale Price

The price at which any fund offers investors per unit of its scheme for sale

Sponsors

An individual or corporate body who establishes and registers a mutual fund with SEBI also contributing 40% or more of the net worth of the AMC

Sector Fund

A fund which invests in stocks from a specific industry aimed at growth, making them risky by nature

Systematic Investment Plan (SIP)

A plan that facilitates investments at regular intervals allowing an investor to give post-dated cheques and receive fresh allotments of units

Systematic Withdrawal Plan (SWP)

A plan that facilitates withdrawals at regular intervals to help investors meet regular financial needsv

Tax Saving Fund

A fund which lets payees of income tax collect a rebate under the Income Tax Act

Total Return

The Return on Investment (ROI) as calculated after considering dividends or interest, capital appreciation, tax considerations as on present value and on annualised basis

Trustee

The body or Trust that has the authority to supervise the overall functioning of the AMC

Venture Capital Fund

A limited company which provides risk capital or venture to new industries

Yield Curve

An upward-sloping curve that reflects the relationship between yields on a bunch of fixed income securities and varying maturities namely notes, bonds, treasury bills, etc.

Yield to Maturity

A tool to determine the rate of returns received by an investor in case of a long-term investment bearing interests, like bonds, are held all the way up to its date of maturity