MUTUAL FUNDS

1. AMC (Asset Management Company)

Asset Management Company is the company that manages funds of individuals. A mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. Various funds can be introduced by a single AMC according to investment objective. It is a pool where funds are collected and invested professionally and the returns are distributed proportionally.

In India all AMCs are required to get themselves registered with SEBI before starting its operations.

2. Annual Return

An annual return is the percentage change in the NAV of a fund over one year. Depending on the need of the investor, the annual return may or may not include dividends and bonus that may be paid in a fund.

3. Asset Allocation

An annual return is the percentage change in the NAV of a fund over one year. Depending on the need of the investor, the annual return may or may not include dividends and bonus that may be paid in a fund.

4. AUM (Asset Under Management)

Asset Under Management means the total sum of investors which the AMC is controlling. It is the total size of assets which these AMCs manage for their client. An AUM of an AMC is the sum of total assets held less its liabilities. AUM keeps fluctuating due to fresh investments and redemptions done on a daily basis.

5. Balanced Fund

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

6. Benchmark Index

Whether a fund is doing well or not can be said only if we compare it to an underlying benchmark. All funds have a benchmark index to be compared with, be it equity or bond. An individual should always understand the fund performance in accordance to its benchmark before investing.

7. Bond

Bond is a financial instrument that bears a promise of paying interest to the investor.

8. Bond Fund

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

9. Bonus

It is the allocation of additional units to investors based on their holding. In simple words, a bonus is the corporation action by way of which the price of each unit of NAV is reduced and the number of units an investor holds increase by the corresponding ratio to ensure the portfolio value remains same before and after bonus.

10. Broker

A Broker is an intermediary who helps/guides an investor on different avenues of investment available.

11. Brokerage

It is the fee that is paid to the broker for the service provided by the fund house.

12. Bull Market

The period during which the price of stock keeps rising, and investors/participants are

13. Closed-End Schemes

A mutual fund scheme where the money is committed for a particular tenure by the investors.

14. Corpus

 

The net amount of money invested in a scheme collectively by all investors.

on a continuous buying spree. The period generally results in a rising price for the shares.

15. Gains Capital

Capital gains are the profit realized upon the sale of securities, and other capital assets such as mutual fund units.

16. Dividend Option

Dividend option in a scheme indicates that there would be intermediate payments to the investor in form of dividends. The rate and time of payment though is not pre-fixed, it depends entirely on the fund performance. In this option, there are two sub options: Dividend Pay-out and Dividend Re-investment.

17. Dividend Payout

In dividend pay-out the investor receives dividends in form of cash pay-out.

18. Dividend Reinvestment

No dividend is paid. Instead the dividends are re-invested and additional units are bought and credited to investor account.

19. Expense Ratio

It tells how much amount needs to be paid to the fund for managing your money.

20. FMP (Fixed Maturity Plans)

Fixed Maturity Plans are closed ended funds. By closed ended we mean that the scheme remains open for a specific time period and post that no further investment can be made in the fund. Neither the fund can be redeemed before maturity.

21. Growth Option

Mutual funds come with growth option and dividend option. Under the growth option whatever interests, bonus, gains and dividends the fund earns is not paid out or distributed amongst the investors. It is ploughed back and re-invested in the scheme itself.

22. Load

There are two types of load, Entry load and Exit load. To meet the administrative and operating expense of a fund when any charge is collected at time of investment it is called Entry load and if the charge is collected at time of redemption it is called Exit load. All funds do not charge loads. It depends upon fund to fund.

23. Lock-in- Period

The period for which a particular investment is restricted from being sold by the investor.

24. NAV (Net Asset Value)

It is the price per share or unit of a mutual fund. As stocks have a share price, mutual funds have NAV. NAV of a fund is calculated at end of the trading day.

NAV is calculated as: (Assets of the fund-Liabilities of the fund)/Number of outstanding units of the fund.

25. NFO

New Fund Offer is similar to an IPO of any company. It is an offering made to public to raise capital for a particular scheme. The offer is open for a stipulated time at unit price of usually Rs.10. After the offer is closed, anyone who intends to opt for the fund can only do so at the NAV. Whenever a new scheme is launched by an AMC it is done through NFO route to raise capital from public to buy equities, bonds etc.

26. No-load Fund

Mutual fund in which no charge is levied on the sale or purchase of units.

27. 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. 

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

29. 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.

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

30. SIP (Systematic Investment Plan)

SIP gives investors the liberty to invest in a scheme on a monthly basis with as little as Rs. 500 a month like bank recurring deposits. Every month fresh units are bought with the monthly payments of the investor at prevailing NAV of the day at the date chosen. The amount gets deducted automatically from the bank account of the investor. An ECS mandate needs to be submitted at time of investment with bank details, amount and specified date.

31. Sponsor

A sponsor is a person who acts alone or with a corporate to establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the fund.

32. STP (Systematic Transfer Plan)

STP is an automated way of moving (transferring) money from one mutual fund to another. This plan is chosen when one wants to invest a lump sum amount but wants to avoid the marketing-timing risk.

33. SWP (Systematic Withdrawal Plan)

The option to withdraw accumulated fund over a span of time. It may also be used as pension for individuals.