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  This article covers  the  frequently used terminologies that one may encounter while understanding or reading about Mutual Funds

1. Acid Test Ratio: It is the ratio obtained by dividing the current assets of a company by the current liabilities.  It is an indication of the company’s financial strength.

2. Annual Fund Operating Expenses: The expenses acquired by an Asset Management company for fund management during a particular year.

3. Asset Allocation: Diversification of investments into various kinds of assets  for the purpose of risk optimization.

4. Asset Allocation Fund: This fund’s portfolio is comprised of various investments such as government securities, real estate stocks, gold bullion, domestic stocks, foreign stocks, and bonds. The proportion allocated to different sectors can remain constant or in accordance with market fluctuations.

5. Asset Management Company: A SEBI registered company that handles asset management and investment decisions for  mutual funds.

6. Automatic Investment Plan: An investment plan where a fixed amount is deducted every month from the investor’s bank account and invested in the chosen mutual fund.

7. Automatic Reinvestment: This option available for mutual fund unit holders involves diversion of earnings from fund dividends or capital gains to buy more fund units.

8. Back End Load: The charge  levied on exiting a mutual fund to dissuade investors from withdrawal.

9. Balanced Fund: A balanced fund comprises of both equity and debt funds with 50-75% allocated to equity and the rest to debt scheme.

10. Benchmark: Benchmark is an unmanaged group of securities whose performance is taken as a standard against the performance of other investments. BSE Sensex and NSE Nifty are a few benchmarks.

11. Bid or Sell Price: The price at which mutual fund shares are bought back by the fund.

12. Blue Chip Fund: Mutual funds that invest in stocks of a well-established company. The stocks of such a company are called blue chip stocks.

13. Bond: It is a debt investment where money is lent by the investor to the company or the government for a particular period of time and interest rate.

14. Bond Fund: A mutual fund with a portfolio majorly comprising of corporate and government bonds. They are income-oriented rather than growth-oriented funds.

15. Bond Rating: It is a grade assigned to a bond indicating its credit quality. Bonds of blue-chip firms have a higher bond rating which indicates the safety of the investment.

16. Capital Gains Distribution: This is the end of year amount paid to mutual fund shareholders which are obtained on selling securities in the mutual fund portfolio.

17. Capital Growth: The change in net asset value per share of mutual fund’s securities due to an increase in its market value.

18. Certificate of Deposit:A short tenure debt instrument issued at a specified interest rate by banks.

19. Closed-End Schemes: A mutual fund scheme where money is committed for a particular tenure by the investors.

20. Contingent Deferred Sales Charge (CDSC): It is a fee levied on the sale of a specific investment. It is a percentage of the invested amount, also known as an exit fee or redemption charge.

 

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21. Conversion Privilege: The privilege shareholders gain through mutual funds to utilise the income obtained or capital gains for the purchase of additional shares without any sales charge.

22. Corpus: Net amount of money invested in a scheme collectively by all investor.

23. Coupon: The stated interest rate on a bond on issuance. The coupon is semiannually paid.

24. Credit Quality: Average credit quality reflects the overall credit quality of the portfolio. Credit quality is given as an average credit rating of each bond, weighted by the relative size in the portfolio.

25. Custodian:  Custodian is the trust company or bank that takes care of mutual fund’s assets and portfolio of securities or maintains a record of them. Custodian only serves the purpose of safekeeping and plays no role in portfolio management.

26. Debt Fund:  This fund invests in investment instruments like bonds, treasury bills etc which are fixed income in nature. This is a preferred choice for investors who have a low-risk appetite.

27. Deferred Sales Charge Schedule of Decline:  The amount that needs be paid for corresponding time duration. The value of this amount goes down with time. Longer the fund is held, lower the sales charge.

28. Distributor:  An individual or corporation involved in the direct buying of shares from the fund and reselling them to other investors.

29. Dividend Plan:  In dividend plans the investor receives timely dividends when they are declared.

30. Dividend Stripping:  When an investor invests with the intention of exiting the fund as soon as the dividend is paid.

31. Duration:  Its a measure of how sensitive a fund is to shift in interest rates. The longer a fund’s duration, the more sensitive it is to interest rate fluctuations.

32. Entry Load:  Entry fee levied at the time an investor buys units of a scheme.

33. Equity Fund: Mutual Fund scheme that invests only in equity.

34. Equity- Linked Savings Scheme:   In this scheme the majority of the invested in ELSS is in equity. The dividends earned in this scheme are tax exempt.

35. Ex-Dividend Date:  The date on which the Net Asset Value (NAV) of a fund decreases by an amount equal to dividend and /or distribution of capital gains.

36. Exchange Privilege: This is a facility offered by some mutual funds where the investor can make a midway switch from one scheme to another within the same fund type without incurring any charges.

37. Exit Load: The fee that an investor needs to pay upon exiting from a mutual fund. The charge is levied to dissuade investors from withdrawing.

38. Expense Ratio: It tells how much amount needs to paid to the fund for managing your money.

39. Floating Rate Debt: A bond whose stated interest rate changes as per market fluctuations.

40. Fund Family: A mutual fund company that offers various funds for different investment objective.

41. Fund Manager: The person responsible for all decisions related to the mutual fund.

42. Gilt Fund: Gilts are securities that are issued by the government and carry minimal risk.

43. Global Fund: A mutual fund investing in stocks or bonds all over the world.

44. Growth Plan: Mutual fund with long-term capital growth as the primary objective.

45. Hedge Fund: Hedge funds use a combination of different techniques to get higher returns.

46. Holding Period: The duration for which a security is held by an individual.

47. Holdings:A fund’s top performing securities.

48. Inception Date: The date on which the fund started operation.

49. Income Fund:The primary aim of this mutual fund is to enhance current income rather than long-term capital growth. This mutual fund invests in stocks and bonds which earn a higher return.

50. Index Fund: Funds that purchase securities that follow the pattern of returns represented by BSE sense.

51. Initial Purchase: The minimum amount required to open a new account. This amount notifies the investor of the monetary constraints he has as a shareholder. A fund’s initial purchase is an important criteria to check while selecting a suitable mutual fund.

52. Interest Rate: The monthly effective rate that is applicable to the amount borrowed. It is indicated as a percentage of the amount borrowed.

53. Interest Rate Sensitivity: Interest rate sensitivity is an indication of how sensitive a fund is to changes in interest rates. A fund with a longer tenure is more sensitive to interest rate changes and hence more volatile as a fund than a fund with a shorter tenure.

54. Intermediate Bond Fund: A mutual fund investing in bonds with a deposit period ranging from 5-10 years.

55. Investment Objective: The long term or short term financial goal that an investor or mutual fund strives for.

56. Investment Yield:  The yield of an investment is related to the risks and prospects of the investment. If its a low-risk investment with better prospects then expected yield will be low and the capital value would be higher.

57. Jobbers: Stock exchange brokers who are involved in buying and selling of shares they specialize in.

58. Level Load: Commission(load) that stays unchanged irrespective of the duration for which an investment was held by the investor.

59. Liquid Fund: Same as money market fund minus the lock-in period.

60. Load: The entry and exit fee that an investor pays on buying and selling units.

61. Lock-in- Period:  The period for which a particular investment is restricted from being sold by the investor.

62. Long-Term Bond Fund:  A mutual fund that invests in bonds with a maturity period of more than 10 years.

63. Long Term Capital Gain:  The revenue generated by selling a mutual fund share that has been held for more than a year.

64. Management Fee:  The fee paid by the mutual fund to the investment advisor for portfolio management of the fund and other advisory services. The fee ranges from 0.5 to 0.1% of the asset value of the fund.

65. Money Market Fund:  A mutual fund investing only in RBI specified investment instruments and money markets like commercial papers, treasury bills certificate, commercial bills etc. These funds come with a minimum lock-in period of 15 days and are regulated by SEBI.

66. Mutual Fund:  It is a kind of trust with pooled funds from a number of investors for the purpose of wealth creation by investing in various financial avenues.

67. Net Asset Value:  NAV is the value of one unit in the mutual fund scheme and is a measure of the fund’s performance.

68. Net Asset Value Per Unit:  The present market value of a mutual fund share. It is daily calculated by considering the total assets i.e securities, accrued income, deducting the liabilities and then dividing the result by the number of outstanding units.

69. Net Assets: It is denoted as total assets minus the total liabilities.

70. No-load Fund:  Mutual fund in which no charge is levied on the sale or purchase o units.

71. Open Ended Schemes:  Mutual fund schemes that issue new units to the public on a regular basis are called open-ended schemes. The duration for redemption is not specific.

72. Operating Expense:  The expenses acquired for operating a business. Includes raw material, maintenance charges cost etc.

73. Payable Date: The date on which dividends are paid to shareholders who do not plan on reinvesting them.

74. Portfolio Manager: Portfolio manager is hired by the fund advisor to handle investment decisions regarding buying and selling of securities for the mutual funds according to the fund’s objective.

75. Price/Book Ratio: It is a metric to compare the market value of a stock to its book value. It is represented as Market Price per share divided by the book value per share.

76. Prime Rate Fund:  A mutual fund that purchases some percentage of corporate loans from banks and pays the interest to shareholders.

77. R& T agents:  Registrars and transfer agents that are responsible for all paperwork involved in investor servicing.

78. Redemption Fee: The fee levied on an investor for exiting a mutual fund. This is imposed to dissuade investors from withdrawing.

79. Redemption Price:  The price at which a mutual fund’s shares are bought back by the fund. It is often equal to the present net asset value per share. The redemption price is also known as sell price, bid etc.

80. Reinvestment Privilege:  Some mutual funds allow their shareholders to use income from capital gains to buy additional shares of their fund without having to pay any sales charge. This is a reinvestment privilege.

81. Risk:  Measure of the ability of an investor to withstand market fluctuations and volatility.

82. Roll Over Option:  This is an option offered by some funds where after redemption investors can choose to reinvest the amount if the fund’s performance is good.

83. Rupee Cost Averaging: A system in which the investor re-invests money into the same mutual fund periodically.

84. Sales Charge: Fees remitted to a brokerage house by a purchaser of shares in a load mutual fund.

85. Sector Fund: An equity scheme that invests in shares of companies belonging to a particular sector. For example, an IT fund would invest only in IT companies.

86. Series Fund: A mutual fund whose prospectus allows for multiple portfolios. Portfolios can be specialized or broad.

87. SIP:  SIP or Systematic investment plan works similar to a recurring deposit plan where the investor can make a monthly/quarterly fixed contribution. SIP is a good option for investors who don’t have a lump sum to invest.

88. Stock Fund: Mutual fund primarily investing in stocks.

89. Subsequent Purchase: The smallest additional purchase a fund allows an existing account.

90. Systematic Withdrawal Plans: This is a plan offered by many mutual funds where shareholders are given payments from their investments. Money for the payments is usually sourced from the fund’s dividend income and capital gain distributions.

91. Treasury Bills:  A government security sold for a duration of 91-364 days. The security is sold by the Reserve Bank of India.

92. Unit:  Represents the extent of ownership of an investor in a mutual fund.

93. Unit Holder: An investor who invests money in mutual funds.

94. Unload:  Selling units of mutual fund.

95. Venture Capital Fund:  A limited company that supports new industries by providing them risk capital.

96. Withdrawal Plan:  It is a facility to redeem mutual funds periodically and have the proceeds sent directly to the investor.

97. Zero Coupon Bond: It is a bond that is sold at a fraction of its face value. There are no periodic interest payments made but the bond value increases with time. The earnings from the bond accumulate until the maturity period and then the bond is redeemable at full face value.

 

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  20. Statutory Liquidity Ratio / SLR is the percentage of a bank's net demand and time liabilities that the bank needs to maintain in the form of liquid assets. Know about SLR objective, components, impact and how it is different from CRR & Repo Rate.
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  23. The International Securities Identification Number (ISIN) is a unique code that is used to identify specific securities. Learn more about it here...
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  27. Tax-free bonds are mostly issued by the government enterprises. It is a low-risk, fixed income and long-term investment. If tax-exemption is your one of your investment priorities, a tax-free bond might for you.
  28. The AMFI / Association of Mutual Funds in India, incepted in 1995, is a statutory body under the Finance Ministry to set ethical and transparent regulations in the Indian mutual fund arena. Read this article to know more about AMFI objective, registration & how it is important to investors.
  29. A Gold Exchange Traded Fund (or Gold ETFs as it’s commonly called) is an investment vehicle based on ever-fluctuating cost of gold, by capitalizing in gold bullion.
  30. Securities and Exchange Board of India (SEBI) is the designated regulatory body for finance and markets in India to protect the interests of the investors and promote mutual funds.
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  32. A riskometer is a pictorial meter which depicts the level of risk in a specific scheme. Read on to know its significance
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  36. Consolidated Account Statement is a statement where an individual gets the detail of all the financial statements at a single place. Read on to know more.
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  52. Non Convertible Debentures are scheme that proved to be a dark horse as they started delivering smaller but steady returns over time. Like traditional corporate FDs, NCD too is a fixed-income investment with a specific term and interest income.
  53. Every investment belongs to one or the other asset class – which is a collection of securities. Know which asset class the investment you are making belongs to achieve your financial goals.
  54. Fund houses allocate a unique number to each investor to enable him/her to track the mutual fund and performance. It functions just like a bank account number.
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  56. A fund advisor plays an important role in keeping your investment goals on track because of the experience and expertise he brings. Read on to know the role of fund advisor in your investment strategy .
  57. Expense Ratio is better known as annual fund operating expenses and covers all the expenses incurred in mutual fund management. Read on to see how expense ratio impacts the returns associated with the mutual fund.
  58. Short-term bond funds are mutual funds that invest in bonds with a maturity period less than 5 years. Read on to know risks ,returns and benefits associated with investing in these bonds.
  59. Real estate investment trust (REIT) funds owns a portfolio of commercial/residential properties. Read on to know why investing in REIT funds is beneficial.
  60. Morningstar Inc. is a Chicago-based investment research and investment management firm. The company rates mutual funds and ETFs on a 1 to 5-star ranking.
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  65. CAMS is a Registrar & Transfer Agency, focusing on servicing investors along with AMCs and CAMSonline is their online portal.
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  67. CRISIL / Full form : Credit Rating Information Services of India Limited - The world's leading credit rating agency for financial institutions and financial instruments. It will help you assess a mutual fund. Know about its parameters & working methodology.
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  72. NRIs can make an investment in Indian mutual funds. Read this article to find out about the complete process of investment in mutual funds by NRIs.
  73. International funds, also known as global funds, invest in regions and countries outside India. Find out more about these funds.
  74. An asset management company is the fund house that manages and runs different mutual fund schemes. Find out more about what an AMC does, on what basis an investor choose them, how they manage funds, SEBI & AMFI guidelines and overall mutual fund structure.
  75. Blue chips stocks belong to high-quality companies that have consistency and stability. Find out why you should invest in these stocks.
  76. A mutual fund's AUM / Asset Under Management is the aggregate market value of the investments it holds in its portfolio. Read this article to know more
  77. CAGR or compound annual growth rate allows you to measure the returns earned by an investment over a complete period of time. Learn how to calculate CAGR & benefits of it.
  78. Think of a fund manager as the captain of a cricket team. It is the fund manager who takes investment calls to help the fund achieve its goals.
  79. KYC / Know your Customer is a one-time exercise that needs to be done to invest in mutual funds & various other applications. Find out the procedure to get it done online through Aadhaar, documents required, learn eKYC with ClearTax and how to check KYC Status.
  80. A portfolio of mutual funds can help you fulfill your investment goals in an effective manner. Read about how to build a portfolio of funds.
  81. NAV / Net Asset Value is a mutual fund’s overall cost which will depend on the price per fund unit. Know about NAV importance in Mutual funds, how it is relevant to investors, calculation, fund performance & much more.
  82. Want to invest in mutual funds? But don't know where to start? Visit ClearTax and learn more about mutual funds, how they work, who should invest, factors to keep in mind before investing, etc.
  83. Understand mutual fund basics by knowing what NAV, expense ratio, regular and direct plans, open-end and closed-end, and other such terms mean.
  84. Rupee cost averaging is a benefit of investing in equity mutual funds through SIPs. It helps you gain more when the markets are choppy.
  85. Complete guide on mutual fund taxation. Know how different mutual funds are taxed in a different manner, depending on the type of mutual fund & the investment holding period.
  86. Balanced funds make more sense than pure equity funds when you are looking to start an SIP in a bull run.
  87. Asking yourself these three questions can help you choose the right mutual fund to invest in.