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Shabbir is a developer in the field of Applications, web as well as database designing and is devoted to the optimization and usability of the code. Apart from doing some Share trading he maintains Programming forum and is a C++ addict.

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Mutual Fund Terms

August 30th, 2009 • Related • Filed Under

After Clarifying many Stock Market Terminologies I had so many emails asking what does some of the below mentioned terms means and so I thought it would be better to have them here. So here they are:

Account statement
A document issued by the mutual fund, giving details of transactions and holdings of an investor.
Annual return
The percentage of change in net asset value over a year’s time, assuming reinvestment of distribution such as dividend payment and bonuses.
Appreciation
When an investment increases in value, it appreciates. For example, a equity share whose price goes from Rs. 20/- to Rs. 25/- has appreciated by Rs. 5/-.
Asset

Property and resources, such as cash and investments, comprise a person’s assets; i.e., anything that has value and can be traded. Examples include stocks, bonds, real estate, bank accounts, and jewellery.

Asset allocation
When you divide your money among various types of investments, such as stocks, bonds, and short-term investments, you are allocating your assets. The way in which your money is divided is called your asset allocation.
Asset Management Company / AMC
It is the investment manager for the mutual fund. It is a company set up primarily for managing the investment of mutual funds and makes investment decisions in accordance with the scheme objectives, deed of Trust and other provisions of the Investment Management Agreement.
Automatic Investment Plan
Like Systematic Investment Plan. Under these plans, the investor mandates the mutual fund to allot fresh units at specified intervals (monthly, quarterly, etc.) against which the investor provides post-dated cheques. On the specified dates, the cheques are realized by the mutual fund and on realization, additional units are allotted to the investor at the prevailing NAV.

Balanced fund
A mutual fund that maintains a balanced portfolio, generally 40% bonds and 60% equity.
Benchmark
A parameter with which a scheme can be compared. For example, the performance of a scheme can be benchmarked against an appropriate index.
Bond
An interest-bearing promise to pay a specified sum of money — the principal amount — due on a specific date.
Bond funds
Registered investment companies whose assets are invested in diversified portfolios of bonds primarily fixed income securities.

Closed-Ended Mutual Fund
Close ended funds are funds where investors can subscribe only during the New Fund Offer (NFO) period only.
CORPUS
The total amount of money invested by all the investors in a scheme or a fund.
Current load
Load structure applicable currently. Funds keep revising the load structures from time to time.
Current market value
The amount a willing buyer will pay for a bond today, which may be at a premium (above face value) or a discount (below face value).
Debt /Income funds
Funds that invest in income bearing instruments such as corporate debentures, PSU bonds, gilts, treasury bills, certificates of deposit and commercial papers. These funds are the least risky and are generally preferred by risk-averse investors.
Diversification
Diversification is the concept of spreading your money across different types of investments and/or issuers to potentially moderate your investment risk.
Dividend

Income distributed by the Scheme on the Units

Dividend plan
In a dividend plan, the fund pays dividend from time to time as and when the dividend is declared.
Dividend reinvestment
In a dividend reinvestment plan, 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 plan would be the dividend declared divided by the ex-dividend NAV.
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.
Equity schemes
Schemes where more than 50% of the investments are done in equity shares of various companies. The objective is to provide capital appreciation over a period of time.

Expense ratio
Annual percentage of fund’s assets that is paid out in expenses. Expenses include management fees and all the fees associated with the fund’s daily operations.
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.
Fund manager
Appointed by the AMC, he is the person who makes all the final decisions regarding investments of a sche
Growth fund
A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential. Growth Stocks of companies that have shown or are expected to show rapid earnings and revenue growth. Growth stocks have relatively more risk than other conventional forms of investment.
Income fund
A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest.
Index fund
A type of mutual fund in which the portfolios are constructed to mirror a specific market index. Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the market, which they are mirroring.
New Fund offer price
The price at which units of a scheme are offered in its Initial Offering Period.
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.

Load
A charge that may be levied as a percentage of NAV at the time of entry into the Scheme/Plans or at the time of exiting from the Scheme/Plans.
Lock in period
The period after investment in fresh units during which the investor cannot redeem the units.
Management fee
Money paid by a mutual fund to its investment manager or advisor for overseeing the portfolio. A management fee is usually between one-half and one percent of the fund’s net asset value.
Maturity or Maturity date

The date upon which the principal of a security becomes due and payable to the security holder.

Maturity value
The amount (other than periodic interest payment) that will be received at the time a security is redeemed at its maturity. On most securities the maturity value equals the par value.
Mutual funds
An investment company that pools money from its unitholders and invests that money into a variety of securities, including stocks, bonds, and money-market instruments. This represents a way of investing money into a professionally managed and diversified pool of securities that hopefully will provide a good return on unitholders’ money.
Mutual fund regulations
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended up to date and such other Regulations, as may be in force from time to time, to regulate the activities of the Mutual Fund.

NAV
Net Asset Value of the Units in each plan of the Scheme is calculated in the manner provided in Offer Document or as may be prescribed by Regulations from time to time.
NAV Change
The difference between today’s closing net asset value (NAV) and the previous day’s closing net asset value (NAV).

NAV Change %
The percentage change between today’s closing net asset value (NAV) and the previous day’s closing net asset value (NAV)
Net worth
A person’s net worth is equal to the total value of all possessions, such as a house, stocks, bonds, and other securities, minus all outstanding debts, such as mortgage and revolving credit lines.
Net yield
Rate of return on a security net of out-of-pocket costs associated with its purchase, such as commissions or markups.
Open-ended Schemes/ Funds
Scheme of a mutual fund where purchase or sale of units is allowed on a continued basis. Funds that do not have any fixed maturity and are continuously open for subscription and redemption. The key feature is liquidity. One can conveniently buy and sell the units held at the NAV related price.
Opening NAV
The NAV disclosed by the fund for the first time after the closure of an NFO.
Portfolio

It refers to the total investment holdings of the fund.

Portfolio churning
It refers to the changes made to the portfolio keeping in view the market conditions. It includes both buying and selling of holdings and is aimed at giving a better yield to the investor.
Redemption
The paying off or buying back of units of a mutual fund / bond by the issuer.

Redemption Fee
A fee charged by a limited number of funds for redeeming, or buying back, fund units.

Redemption Price
The price at which a mutual fund’s units are redeemed (bought back) by the fund. The redemption price is usually equal to the current NAV per unit.

Returns
The dividend and capital appreciation accruing to the investor on the investment held by him.
Scheme
A mutual fund can launch more than one scheme. With different schemes, in spite of there being a common trust, the assets contributed by the unit holders of a particular scheme are maintained and managed separately from other schemes and any profit/loss from the assets accrue only to the unit holders of that scheme.
Systematic Investment Plan (SIP)
Program that allows an investor to provide 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. This enables him to invest as little as Rs 1000 a month and take advantage of rupee cost averaging.
Systematic Withdrawal Plans (SWP)
A plan offered with some schemes under which post-dated cheques for fixed amounts (as may be fixed by the fund) are issued to the investors for monthly, bi-monthly or quarterly withdrawals. The withdrawals are as per the requirements of the investor specified by him/ her at the time of investment.

Unit
A Unit represents one undivided share in the assets of the Schemes.
Unit holder
A person who holds Unit(s) under any plan of the Scheme.

52 Week High
The highest market value of a unit (in terms of NAV) during the immediately preceding 52 weeks.
52 Week Low
The lowest value of a unit (in terms of NAV) during the immediately preceding 52 weeks owns, the more volatile the investment.

Yield
Distributions form investment income, usually expressed as a percentage of net asset value or market price. Unlike total return, yield has the single component of investment income and does not include capital gains distributions or capital appreciation of underlying shares.

Bookmark this page for future reference and also look at Stock Market Terms for explanation of more such terminologies.

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There Are 2 Responses So Far. »

  1. Comment by saurav on 28 December 2009:

    Can I redemn a close ended mutual fund within the first three years of the NFO?

  2. Comment by Animesh Kumar on 12 January 2010:

    Hi Saurav,

    In case of close-ended fund, units can be redeemed only after the maturity period.
    As far as your question is concerned, if maturity period is less than three years then yes, you can redeem your units purchased.
    Hope it resolves your query.

    Thanks and Regards
    Animesh

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