Mutual Fund Investments - Know About All MF Basics - Terms

12/10/2019 Mutual Fund Investments - Know about all MF Basics / Terms
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Mutual Fund Investments : Basics, Terms

Updated on Nov 25, 2019 - 12:36:44 PM
This article covers the frequently used terminologies that one may encounter while understanding or reading
about Mutual Funds (https://cleartax.in/s/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 risk optimisation.
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 change as per 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. Go to Top
https://cleartax.in/s/mutual-fund-investment 1/15
11. Bid or Sell Price: The price at which mutual fund shares are repurchased 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 the investor lends the money to the company or the government for a
particular period 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 a 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 the 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: The net amount of money invested in a scheme collectively by all investors.
23. Coupon: The stated interest rate on a bond 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
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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 to be paid for the 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: The 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 vulnerable 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 the dividend and /or distribution of capital gains.
36. Exchange Privilege: 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 be 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 objectives.
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.

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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 criterion 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 susceptible 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 than expected yield would 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 the 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
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performance.
68. Net Asset Value Per Unit: The present market value of a mutual fund share. It is calculated daily 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 the fund repurchases a mutual fund’s shares. 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 the income from capital gains
to buy additional shares 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
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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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67. NRE & NRO Accounts – Meaning, Comparison, Benefits, Taxation (/s/nre-nro-accounts/)
NRIs have two ways to operate their finances in India - through NRE and/or NRO accounts. Read on to
know more about NRE & NRO accounts, and the difference between the two.
68. CRISIL Rating for Mutual Fund (/s/crisil-rating/)
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 &amp;amp;amp;amp;amp; working methodology.
69. Sharpe Ratio : Basics, How to use it and More (/s/sharpe-ratio/)
The article describes what Sharpe ratio means, how is it calculated and its relevance in selecting the right
mutual fund to minimize the risk of investment. Generally, risk-adjusted return happens to be returns
earned over and above the returns generated by a risk-free asset like a fixed deposit or
70. Loan Against Mutual Funds (/s/loan-against-mutual-funds/)
Need a contingency fund on a short notice? Instead of going for a personal loan, take loan against mutual
funds without liquidating your units or affecting exisiting systematic investment plan.
71. ELSS Funds – Invest in Best Equity Linked Savings Scheme (/s/elss/)
ELSS Funds are the funds where you can invest and get tax benefits. Know more about What is ELSS /
Equity Linked Savings Scheme in India? Get detailed information and FAQs on ELSS Funds, Tax Saving
Mutual Funds schemes
72. SIP – Invest in Best Systematic Investment Plans (/s/sip/)
SIP - Systematic Investment Plan is a beneficial way of investing in mutual funds. In SIP, you can invest
manageable sums periodically in place of investing huge lump sum. Learn more about SIP, its meaning,
Calculation, benefits &amp; how to select the best SIP plans for your investments.
73. NRI Investment in Mutual Funds in India: Process, Regulations and More (/s/nri-mutual-fund-investment/)
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.
74. Investing in International Mutual Funds (/s/international-mutual-funds/)
International funds, also known as global funds, invest in regions and countries outside India. Find out
more about these funds.
75. Asset Management Company ( AMC ) (/s/asset-management-company-amc/)
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.
76. What are Blue Chip Stocks? (/s/blue-chip-stocks/)
Blue chips stocks belong to high-quality companies that have consistency and stability. Find out why you
should invest in these stocks.
77. AUM (Asset Under Management) (/s/need-know-mutual-fund-aum/)
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
78. Compound Annual Growth Rate ( CAGR ) – What is CAGR and How is It Useful? (/s/what-is-cagr-and-
how-is-it-useful/)
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.
79. The Role of a Fund Manager in Mutual Funds (/s/role-fund-manager-mutual-funds/)
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.
80. KYC ( Know Your Customer ) : Meaning, How to Check Your KYC Status & More (/s/kyc-check-kyc-status/)
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, documentsGo to Top
required, learn eKYC with ClearTax and how to check KYC Status.
81. How to Build a Portfolio of Funds (/s/build-portfolio-funds/)
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.
82. NAV ( Net Asset Value ) – NAV Definition & Importance of Net Asset Value in Mutual Funds (/s/nav-
important-selecting-mutual-fund/)
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.
83. How to Invest in Mutual Funds? – Guide to Start (/s/never-invested-mutual-funds-heres-begin/)
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.
84. What is Rupee Cost Averaging and How It Works (/s/rupee-cost-averaging-works/)
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. Mutual Fund Taxation – How mutual funds are taxed? (/s/different-mutual-funds-taxed/)
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. Why Balanced Funds Make Sense at A Market High (/s/balanced-funds-make-sense-market-high/)
Balanced funds make more sense than pure equity funds when you are looking to start an SIP in a bull
run.
87. Ask Yourself These 3 Questions Before Choosing a Mutual Fund (/s/ask-three-questions-choose-mutual-
fund/)
Asking yourself these three questions can help you choose the right mutual fund to invest in.
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Mutual Fund Investments : Basics, Terms

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

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

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.

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