Statement issued by the mutual fund giving details of transactions and holdings
of an investor in the schemes
Adjusted NAV (Total Return):
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
It is a percentage of change in net asset value over a year's time, assuming reinvestment
of distribution such as dividend payment and bonus.
Absolute returns over a period (which could be larger or smaller than a year) aggregated
to a period of one year. Used for the purpose of comparing returns over different
Net Asset Value at which purchase or sales is transacted. A cut-off time is set
by the fund and all investments or redemptions are processed at that particular
NAV. This NAV is relevant if the application is received before that cut-off time.
If the application is received thereafter, it will be treated as the next day's
application and allotted the relevant NAV.
It means allocation of total funds available with the scheme into various asset
classes. This is based on the investment objective of the scheme.
Asset Management Company (AMC)
The company vested with the responsibility of managing investments of the schemes
and making decisions in accordance with the stated investment objective of each
scheme. AMC are appointed by the trustees to manage money on behalf of investors.
Average Cost Method
This is the average price of units purchased by the investor calculated by adding
up all the costs involved in purchasing all the units of investment and then dividing
the sum by the total number of units.
It’s the average time to maturity of all fixed-period investments in the portfolio
of a scheme.
Annual and Semiannual Reports
The yearly and half-yearly record of a scheme's performance and is required to be
distributed to investors under SEBI regulations.
Funds that invest in equity and debt instruments in varying proportions. These funds
supplement capital appreciation from equities with a steady return from debt instruments.
To a large extent, the returns depend on the performance of the equity portion in
the portfolio. There is some flexibility in changing the asset composition between
equity and debt and fund managers use their judgment to buy the best asset class
at each time.
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 could be benchmarked against the BSE Sensex.
It shows the sensitivity of the fund to movements measured against the benchmark.
A beta of more than 1 indicates an aggressive fund and the value of the fund is
likely to rise or fall more than the benchmark. A beta of less than 1 implies a
defensive fund that will rise or fall less than the benchmark. A beta of 1 indicates
that the fund and the benchmark will react identically.
A debt instrument issued either by a company, the government or its agencies. It
carries a fixed interest and promises return of principal on a specified date.
Additional units allotted to investors on the basis of their existing holdings.
Basically, there is a split of existing units into more than one unit resulting
in the reduction of the NAV per unit. The investor is neither better nor worse off
as a consequence of bonus units.
A popular 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.
A period during which security prices in a particular market are generally falling
and there is lot of sell pressure.
A period during which security prices in a capital market are generally rising and
the general perspective of the investors is positive.
As per the Income Tax Act, the gains made on sale of securities and certain other
assets (including units of mutual funds) are charged to capital gains tax. The gains
can be long-term or short-term depending on the period of holding of the asset and
are charged to tax at different rates. Gains on mutual fund units held for a period
of 12 months or more are long-term gains and such gains on equity mutual fund are
Close ended schemes have a pre-defined maturity. The fund may also offer an exit
route by offering to repurchase at NAV related prices. Though such funds may often
be listed on stock exchanges their units generally trade at a discount.
Cost of Churning
The portfolio of a scheme changes from time to time. The rate of change depends
on the style of the fund manager, whether he follows the buy-and-hold philosophy
or aggressively churns the fund. Such portfolio changes have associated costs of
brokerage, custody fees, transaction fees and registration fees which lower the
returns. These costs comprise the cost of churning.
Credit risk is that a bond issuer may not be able to pay interest and repay the
An agency which has custody of all the securities purchased by the mutual fund.
The service can be provided only by a corporate entity which has been granted a
certificate of registration to carry on the business of custodian of securities
under the SEBI regulations.
In respect of all mutual funds regulated by SEBI, fresh subscriptions and redemptions
are processed at a particular NAV. Every fund specifies a cut-off time in respect
of fresh subscriptions and redemption of units. All requests received before the
cut-off times are processed at that day's NAV and thereafter at the next day's NAV.
Date of Redemption
The date specified for the redemption of a scheme. No such date is specified for
an open-ended scheme.
Funds that invest in income bearing instruments such as corporate debentures, PSU
bonds, gilts, treasury bills, certificates of deposit and commercial papers. Although
these funds are less risky, the underlying investments carry a credit and interest-rate
risk. Comparatively, these funds are less risky and are preferred by risk-averse
It is the portion of profits that a company or a mutual fund distributes to its
shareholders or unit holders.
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.
In a dividend payout option, the fund pays out dividend from time to time
In a dividend reinvestment option, the dividend is reinvested in the scheme itself.
Hence instead of receiving dividend, the unit holders receive units. Thus the number
of units allotted under the dividend reinvestment option would be the dividend declared
divided by the ex-dividend NAV.
The dividend earned per unit of a scheme at the prevailing per unit price.
Investing across a number of asset classes or assets within an asset class to help
in reducing the risk.
Employee Unique Identification Number (EUIN)
It’s a 7 digit unique alphanumeric number issued by AMFI to all the people associated
with the sale/distribution of mutual funds.
Equity Linked Savings Scheme (ELSS)
ELSS offer tax-saving with the advantage of participating in the growth of the capital
market. An investment of up to 1,00,000 in ELSS qualifies under Section 80C of the
Income Tax Act, 1961. As per the ELSS guidelines issued by the Central government,
mutual funds have to ensure that at least 80 percent of the funds are invested in
equities and equity-related instruments. Investors can sell back their units to
the mutual fund at the NAV-based repurchase price after the lock-in-period of three
Schemes where more than 65% of the investments are done in equity and equity related
securities of various companies. These funds tend to provide maximum returns over
a long-term horizon. However, the returns from these funds are directly linked to
the stock market and are volatile as compared to those from debt funds.
In respect of any distribution of dividend, the date from which the holders are
not entitled to the dividend. On the ex-dividend date, the NAV is accordingly reduced
to the extent of the dividend declared
The fee charged at the time of redemption. It amounts to the difference between
the NAV of the units of a scheme and the price at which existing units are redeemed.
The fee has to fall within the overall limit laid down by SEBI.
In the case of close-ended/interval schemes, the specified date or period during
which the investor can redeem units held by him in the scheme before the maturity
of the scheme.
The expenses of a scheme include management fees and 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.
The original issue price of one unit of a scheme, generally Rs 10.
Fund Management Costs
The charge levied by an AMC on a mutual fund for managing their funds.
Gilt Funds are those schemes which invest only in government securities of different
maturities. They generally offer lower returns as compared to a regular debt fund
as the credit risk in gilts is virtually zero. They are, however, subject to interest
The Growth plan of a scheme retains back the earnings, instead of declaring dividends
of the scheme. The returns from the investor's point of view are accumulated within
the scheme. There are differing implications for tax computation.
Returns from mutual fund schemes are subject to market and other investment risks.
As such there is no assured/guaranteed return 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
A class of equity funds that invest in equity shares of various companies in the
same proportion in which they appear in the composition of any popular index, such
as the BSE Sensex, S&P 500. The performance of such funds closely tracks the performance
of the index. These are passively managed investments.
The central government specifies 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 benefit is available only if the security has been held for more than 12 months
(long-term). Since capital gains on long-term equity mutual fund investments are
tax free, indexation benefits are applicable only to investments in debt mutual
fund schemes. On sale of any debt mutual fund scheme, one can opt for paying tax
at the rate of a flat 10% of capital gains or go in for paying 20% of capital gains
after taking the benefit of indexation. This benefit of indexation is available
only to investors who are resident under the Income Tax Act.
It is the declared purpose of investment of a mutual fund scheme.
The internal guidelines that a fund follows in investing the money received from
Dividends, interest, etc paid to a mutual fund’s shareholders. Income is earned
on a fund’s investment portfolio after deducting operating expenses.
The risk that a portion of an investment’s return may be eliminated by inflation.
Interest Rate Risk
The possibility that a bond’s or debt fund’s value will decrease due to rising interest
The ability to have ready access to invested money. Open end mutual funds are liquid
because their shares can be redeemed for current value on any business day. In the
context of mutual funds, it is the cash and cash equivalent assets available to
meet expenses and immediate redemption requirements of the investors
Liquid funds/money market funds
Funds investing only in short-term money market instruments including treasury bills,
commercial paper and certificates of deposit. The objective is to provide liquidity
and preserve the capital
The process of registration with the stock exchanges after which the scheme qualifies
for trading on a stock exchange.
The fee charged by the fund at the time the investor redeems his units (exit load).
Funds that charge these loads at the time of exit are called load funds. It amounts
to the difference between the NAV of the units of a scheme and the price at which
units are redeemed. Though the load is decided by the AMC, it has to fall within
the overall limit laid down by SEBI. Schemes that do not charge any load are called
The period during which the investor cannot redeem the units.
Fee, usually expressed as percentage of assets under management, within the limits
laid down by SEBI, charged by the AMC for managing of the mutual fund scheme.
The minimum amount required to be invested to purchase units of a scheme of a mutual
The smallest sum that an investor can withdraw from the fund at one time.
It refers to a market for very short-term securities such as Treasury Bills and
Call Money make up the bulk of trading in the money markets.
An investment company/trust that pools money from unit holders 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 (NAV)
The value of fund's portfolio at market value less current liabilities and other
accrued expenses divided by the number of units outstanding.
Non Performing Investments
Part of the portfolio investment of a debt fund which is not making interest payment
or principal amount repayments in time.
An index of prices of a group of fifty specified stocks listed on the NSE.
Document by which a mutual fund invites the public for subscription to units of
a scheme and informs them of the characteristics of the scheme. The document contains
information about the scheme to enable a prospective investor to make an informed
Schemes for which a fixed date of redemption is not specified. The fund offers to
sell and buy units at any time at prices linked to the prevailing NAV.
Refers to those business costs paid from a fund’s assets before earnings are distributed
Switches between different stocks in the market, keeping in view the market conditions.
See also Cost of Churning
Price of units
Price offered by a mutual fund for repurchase or sale of a unit on a daily basis
The possibility that a bond owner will receive his or her principal investment back
from the issuer prior to the bond’s maturity date.
An evaluation of a scheme in relation to a parameter. The rating could be done in
respect of the creditworthiness of debt instruments, risk of loss in an investment
or the performance of an investment.
Redemption of units/repurchase
Buying back/cancellation of the units by a fund on an on-going basis or on maturity
of a scheme. The investor is paid a consideration linked to the NAV of the scheme.
Registrar & Transfer Agency
An agent appointed for the purpose of handling the records of the unit holders or
The price of a unit (net of exit load) that the fund offers the investor to redeem
It is the investment principle that an investment must offer higher potential returns
as compensation for the likelihood of increased risk.
Securities and Exchanges Board of India established under Securities and Exchanges
Board of India Act, 1992.
Schemes of mutual funds that invest predominantly in a particular industry or sector
of the economy such as information technology, pharmaceuticals, banking etc. These
funds tend to be more volatile than funds holding a diversified portfolio of securities
across many industries but may offer greater potential returns. These funds should
be considered only if an investor has a high risk appetite.
It is the transfer of one's investment from one scheme to another.
Systematic Investment Plan (SIP)
SIP allows an investor to buy units of a mutual fund scheme on a regular basis by
means of periodic investments into that scheme. Here the plan allows the investor
to take advantage of the Rupee Cost Averaging method.
Systematic Withdrawal Plan (SWP)
SWP permits the investor to receive a pre-determined amount / units from his investment
in a mutual fund scheme on a periodic basis. Those in need of a regular income such
as retirees often opt for this.
Systematic Transfer Plan (STP)
An STP allows the investor to transfer a pre-determined amount from his investment
in a fund scheme to another fund scheme of the same fund house on a periodic basis.
This plan is generally used to transfer sums from a money market/liquid scheme to
Securities Transaction Tax (STT)
Tax levied on your equity mutual fund investment, equity shares and derivatives.
The performance of an investment, including yield (dividends, interest, capital
gains) as well as changes in per unit price, calculated over a designated period
of time expressed in percentage terms. Simply put, it is the return one gets on
investment taking all factors into account.
Trustees of a Mutual Fund
SEBI regulations require requires all funds to appoint a board of trustees. They
appoint and oversee the operations of the AMC to ensure that the interest of investors
is always safeguarded.
The costs incurred by the buying and selling of securities including broker commissions
and the difference between dealer buying and selling price.
Treasury Bills (T-bills)
A short-term debt instrument issued by the government with a maturity period of
one year or less.
The owner of units or shares of a mutual fund.
Volatility refers to the ups and downs of the price of an investment. If the price
movements are rapid over a short period of time it’s highly volatile and vice versa.
Annual rate of return on an investment, expressed as a percentage. For mutual funds,
the closing NAV divided by purchase price NAV.
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 at times
Yield to maturity (YTM):
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
Zero Coupon bond
A bond that does not pay a regular interest, but accumulates the interest, and pays
it along with the principal when the security matures.