Arihant's Mutual Fund Glossary will help you find easy to understand meanings of the frequently used terms in the mutual fund fraternity.



Account Statement: Statement issued by the mutual fund, in lieu of the unit certificate, giving details of transactions and holdings of an investor in the different schemes of the fund.

Adjusted NAV: The Net Asset Value after adjusting for all changes caused due to dividend declaration, bonus etc. assuming reinvestment of distributions made to the investors at the prevailing NAV.

Annual Report: The yearly record of scheme's performance, and is distributed to investors and/or shareholders under SEBI regulations.

Applicable NAV: It is the NAV that will be applied for a transaction depending upon the cutoff time specified by the Mutual Fund. All investments or redemptions are processed at that particular NAV. A different NAV holds if received after the cutoff time.

Asset Allocation: The distribution of total funds available with the scheme into instruments of various types such as stocks, bonds etc. based on the scheme's investment objective as detailed in the offer document.

Asset Management Company (AMC): The legal entity set up by a Mutual Fund to handle its operations. This body has to be a distinct entity different from the sponsor. It ensures that investments have to be made according to the objectives of the scheme, the deed of the trust and provisions of the investment management agreement between the trust and the AMC.


Balanced Fund: A fund that holds both stocks and bonds. Also known as hybrid funds.

Benchmark: The investment performance of the scheme needs to be compared in relative terms against some indicator, which is called as the benchmark for the scheme. For example, the performance of an equity fund be benchmarked against the BSE Sensex.

BSE Sensex: A index reflecting the stock prices of 30 companies listed on the Bombay Stock Exchange (BSE) which is taken to be representative of the stock market movement.


Capital Gains: The profit realizations on sale of securities and certain other capital assets (including units of mutual funds) are called capital gains. The gains can be classified into long-term, if the investments are held for more than one year, or short-term, otherwise, and are charged at different tax rates.

Close ended schemes: Schemes have a pre-specified maturity period and investments in these schemes can be made at the time of the IPO and thereafter at market price through the stock exchange on which the same is listed. The market price is generally at a discount to the NAV depending upon market perception and expectations of the scheme. The Fund may also offer an exit route by offering to repurchase at NAV related prices.

Commercial Paper: A staple of money-market instruments, short-term in nature, issued by large, creditworthy corporations.

Compliance Officer: SEBI regulations require that an officer be appointed by the AMC to comply with various regulatory requirement and to redress investor grievances associated with the funds.

Compounding: Earnings on an investment's reinvested earnings. Given sufficient time, compounding can result in exponential growth of money.

Current Load: It refers to the load structure applicable currently on any fund. Funds keep revising the load structures from time to time.

Current Yield: The ratio of coupon interest to the actual market price, prevailing in the market, of the bond expressed as a percentage: annual interest/ current market value = current yield.

Custodian: SEBI mandates that a Custodian be appointed for safekeeping of a fund's securities and other assets.

Cutoff time: Investments and redemptions are processed at a particular NAV. This NAV is a function of the cutoff times specified by the fund. For example a fund may 10.00 am as the cutoff time in the Liquid Fund for previous day NAV. Investment Applications received after the cutoff time of 10.00 am will get same day NAV, while applications received before 10 am will get previous day NAV, assuming that there are no holidays/Sundays involved in between.

Cutoff time: Investments and redemptions are processed at a particular NAV. This NAV is a function of the cutoff times specified by the fund. For example a fund may 10.00 am as the cutoff time in the Liquid Fund for previous day NAV. Investment Applications received after the cutoff time of 10.00 am will get same day NAV, while applications received before 10 am will get previous day NAV, assuming that there are no holidays/Sundays involved in between.


Discount: Refers to a closed-end fund trading in the market at a price below the NAV of its portfolio.

Distributor: The organisation that supplies mutual fund products to investors. The distributor may sell units to securities dealers, who then sell them to investors, or it might deal directly with the public.

Diversification/Spreading the risk: Diversification, i.e. investing across a number of asset classes, assets within a asset class, helps in reducing the risk.

Dividend Plan: An investment plan that periodically distributes the gains as dividends. If a customer seeks regular income from Mutual Fund investment then he/she should opt for a dividend plan.

Dividend Payout: Under the Dividend plan of a scheme there are two options available to the investor, viz. Dividend Payout option and Dividend Reinvestment option. Under the Dividend Payout option, the dividend declared is also actually distributed i.e. given to the investor.

Dividend Reinvestment: Under the Dividend plan of a scheme there are two options available to the investor, viz. Dividend Payout option and Dividend Reinvestment option. Under the Dividend Reinvestment option, the dividend declared is not distributed i.e. given to the investor but reinvested in the scheme itself.

Dividend yield: It refers to the dividend earned per unit in Rupees of a scheme at the prevailing NAV.

Duration: This is a tool used to calculate the average holding period of the assets in a debt scheme, and can help, particularly Modified Duration, in estimating the sensitivity of a fund to incremental yield movements.


ELSS (Equity Linked Saving Schemes): Diversified equity that additionally offers a tax rebate under section 80C on investments upto 1 Lac of Rupees.

Entry Load: It is the load charged by the fund when one invests into the fund. It increases the price of the units to more than the NAV and is expressed as a percentage of NAV. For example a 1 % entry load will increase the NAV from Rs 11 to Rs 11.11 and therefore the number of units allotted will be lesser to that extent.

Equity Funds: The class of mutual fund schemes that invests primarily in equities or shares.

Expense Ratio: The Expenses of a scheme include management fees and all the fees associated with the scheme's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses and can affect the performance of the scheme.

Exit Load: It is the load charged by the fund when one redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.


Face Value: The original issue price of one unit of a scheme, generally Rs 10.

First In First Out: It is an accounting method which assumes that the units purchased first are the units sold/redeemed first.

Folio number: A unique account number, akin to a bank account, given by a fund house to a customer. By quoting the folio no. the customer can get a list of his/her unit holdings with the fund house.

Fund of Funds: These are all-in-one funds that invest in other mutual funds.

Fund Manager: She/he is the person who makes all the investment decisions for deployment of the funds of a scheme.

Gilts/Government Securities: Securities created and issued by the Central Government and/or a State Government, and may include securities unconditionally guaranteed by the Government. The coupon on these securities is determined by an auction process.

Gilt Funds: Gilt Funds are those schemes which as per their offer document can invest only in government securities of different maturities. They offer lower returns as the credit risk is virtually absent and there are no chances of government defaulting on its payment obligations. This effectively reduces the yield on them. They are still subject to the interest rate risk. Their objective is to generate steady and regular returns while taking on modest level of risks.

Government Securities (G. Secs): Debt securities of tenures of over one year issued by the government. Since the government issues them, they don't carry any risk of default.

Growth Investing: A popular investment style whereby fund managers identify companies showing promise of above-average earnings. Stocks are held primarily for price appreciation as opposed to dividend income. Growth investors often are willing to pay high multiples of earnings or book value for companies with exciting prospects.

Growth Plan: The Growth plan of a scheme retains/ploughs back the earnings, instead of declaring dividends of the scheme. The returns from the investor's point of view are accumulated within the scheme. Growth Plan is different from the Dividend Reinvestment Option as in the latter dividends are declared but not distributed, while in the Growth Plan the dividends are not declared. There are differing implications for tax computation.

Guaranteed Returns: Returns from mutual fund schemes are subject to market and other investment risks. As such there is no assured/guaranteed returns in mutual funds. This applies even to debt schemes. The launch of scheme/fund offering guaranteed returns is now subject to certain restrictions imposed by the SEBI, and generally SEBI does not allow guaranteed returns.

Hybrid Funds: A fund that holds both stocks and bonds. Also known as balanced funds.

High-yield Bonds: Issues rated below investment grade (as evaluated by credit rating agencies). Although they often promise high income, junk bonds carry high credit risk and might be near or in default. Also known as high-yield bonds, junk securities are particularly sensitive to changes in economic conditions. See Junk bond.

Index Fund: A type of mutual fund in which the portfolios are constructed to mirror a specific market index. Securities are purchased in the same proportions as in the selected Index. Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the index which they are mirroring. The focus is on passive investment style.

Indexation: The capital gains arising out of selling mutual fund units are taxed at Long Term Capital Gains rate if they are held for more than one year. The Long term capital gains rate can be computed either as 10 % flat or 20 % with indexation benefit. For this the government has specified an index linked to the wholesale price 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.

Inflation: The rise in prices of goods and services over a period of time.

Inflation Risk: The probability of the value of an asset being eroded on account of inflation.


Junk Bond: Same as High-yield Bonds.

Liquid Funds: Funds, as per their offer documents, investing only in short-term money market instruments including treasury bills, commercial paper, call money market and certificates of deposit. The objective is to provide liquidity and preserve the capital.

Liquidity: From the Fund management point of view, the cash and cash equivalent assets available with a fund to meet expenses and immediate redemption requirements of the investors. It refers to the ability to buy or sell an asset quickly or the ability to convert to cash quickly. From the Investor point of view, it reflects the ease and speed with which an investor can convert his/her unit holdings into cash.

Lock-in period: The period of time for which investments made in a scheme cannot be withdrawn. In Mutual Funds, a lock in period of 3 years is applicable on Equity Linked Savings Schemes (ELSS).

Management Fee: The fees charged to a scheme for investment management of the funds under the scheme, usually expressed as percentage of assets, and is subject to limits prescribed by SEBI.

Market Risk: It refers to the risk posed by the market in itself i.e. the risk that the price of a security will rise or fall due to changing economic, political, or market conditions.

Money Market: It refers to a market for very short-term securities less than a year, such as Treasury Bills and Call Money make up the bulk of trading in the money markets.

Monthly Income Plan (MIP): Debt based schemes whose objective is to generate modest, but stable returns preferably on a monthly basis.

Mutual Funds: An investment company/trust that pools money from unitholders and invests that money into a variety of securities, including stocks, bonds, and money-market instruments as defined in the offer document of the specific mutual fund.

Net Asset Value: The value of fund's portfolio at market value less current liabilities and other accrued expenses divided by the number of units outstanding. Net asset value is normally computed daily.

New Fund Offer (NFO): An offer made by a mutual fund to the investors for subscription to the scheme for the first time. The NFO is open for a prescribed period during which time investors will be allotted units at the face value. A new fund offer is similar to an initial public offering. Both represent attempts to raise capital to further operations. New fund offers are often accompanied by aggressive marketing campaigns, created to entice investors to purchase units in the fund. However, unlike an initial public offering (IPO), the price paid for shares or units is often close to a fair value. This is because the net asset value of the mutual fund typically prevails.

No Load: It refers to the fund that does not charge any load for buying or selling its units, i.e. the investor can transact at the NAV.

Non Performing Assets: Assets that do not provide returns are classified as NPAs as per the provisions of SEBI regulations.

Offer Document: It is the official document issued by mutual funds prior to the launch of a fund describing the characteristics of the proposed scheme/fund to all its prospective investors. It contains information required by SEBI pertaining to issues such as investment objective and policies, services, and fees.

Open Ended Fund/Scheme: It is a type of a scheme/fund where purchase or sale of units is offered on a continued basis at NAV related prices.

Portfolio: A group of securities in a common account. The term is used as a synonym for fund.

Portfolio Rebalancing: The process of periodically revising a portfolio to restore the asset-class weights for stocks, bonds, and cash to their long-run target values. You do this by selling shares in appreciated asset classes and buying shares in under-represented categories.

Redemption: An investor wishing to withdraw his/her investment from a scheme/fund gives a redemption transaction. The investor is paid a NAV linked price.

Risk Adjusted Returns: For the purpose of comparing returns across schemes 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.

Sale Price: The price at which a fund offers to sell one unit of its scheme to investors. This NAV is grossed up with the entry load applicable, if any.

Sector Funds: The riskiest among Equity Funds, these funds invest only in stocks of a specific industry, say, FMCG, Power, IT or Pharmaceuticals.

Sponsors: A sponsor is the person who, acting alone or in combination with another body or corporate, establishes a mutual fund and applies to SEBI for its registration. As per SEBI regulations, the sponsor has to contribute a minimum of 40% of the net worth of the AMC.

Systematic Investment Plan (SIP): It is a plan offered to facilitate systematic investments at regular intervals so that an investor can give post-dated cheques to the mutual fund to allot fresh units at specified intervals (usually monthly or quarterly). On the specified dates, the cheques are realized by the mutual fund and additional units at the prevailing NAV are allotted to the investor. SIP helps investors to average the cost of acquisition.

Systematic Withdrawal Plan (SWP): It is the opposite of SIP and facilitates regular withdrawals. This helps investors in meeting their regular financial needs.

Total Return: Return on investment, calculated after taking into account capital appreciation, dividends or interest, and individual tax considerations adjusted for present value and expressed on an annualised basis.

Trustee: The Trustees comprise the Trust and having an overall supervisory authority over the AMC. They ensure that the AMC follow the trust deed, the SEBI regulations and the offer document and the assets of the funds are held safely.

Value Investing: A popular investment style that focuses on identifying under-priced securities. In contrast to growth investors, value investors try to buy stocks selling for low multiples of earnings, book value, or any other yardstick.

Yield Curve: The curve gives the relationship between yields on a group of fixed-income securities with varying maturities viz. treasury bills, notes, and bonds. The curve typically slopes upward since longer maturities normally have higher yields, although it can be flat or even inverted.

Yield to Maturity: Used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments.

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