Glossary

61 mutual fund terms, each in a few plain sentences.

A

Alpha: Alpha is the return a fund earned above or below what its benchmark's moves would predict, in percentage points a year.
AMC (fund house): An AMC, or asset management company, is the SEBI-registered company that runs a fund house's mutual fund schemes.
Arbitrage fund: An arbitrage fund earns the price gap between a share in the cash market and its futures contract, with returns close to short-term interest rates.
ARN: An ARN is the AMFI Registration Number a mutual fund distributor must hold to sell funds and be paid for it.
AUM (assets under management): AUM is the total market value of the money a fund, or a whole fund house, manages on a given day.

B

Benchmark: A benchmark is the market index a fund names as its yardstick, so its returns can be compared with the market it invests in.
Beta: Beta measures how much a fund's returns have moved with its benchmark: 1 means in step, above 1 means larger swings, below 1 smaller ones.

C

CAGR: CAGR, the compound annual growth rate, is the steady yearly return that would turn a starting value into an ending value over a period.
CAS (consolidated account statement): A CAS, or consolidated account statement, lists all your mutual fund holdings across fund houses in one statement, linked by your PAN.
CKYC: CKYC is the central KYC registry run by CERSAI for banks, insurers and investment firms, which identifies you by a 14-digit KIN.
Credit risk: Credit risk is the chance that a bond's issuer pays interest or principal late or not at all, or has its credit rating cut.
Cut-off time: The cut-off time is the hour by which a purchase or redemption must reach the fund house for that day's NAV to apply.

D

Debt fund: A debt fund invests in bonds, government securities and money-market instruments, earning interest and gaining or losing as their prices change.
Drawdown: A drawdown is a fall in a fund's NAV from a previous peak to a later low, shown as a percentage of the peak.

E

ELSS: An ELSS, or equity linked savings scheme, is an equity fund with a three-year lock-in that qualifies for a tax deduction under the old tax regime.
ETF: An ETF, or exchange traded fund, is a fund whose units are listed on a stock exchange and bought and sold there through a demat account.
Exit load: An exit load is a charge, as a percentage of the amount redeemed, taken when units are sold or switched out within a set period of buying.
Expense ratio: The expense ratio is the yearly cost of running a fund, shown as a percentage of its assets and taken out of the NAV every day.

F

Flexi cap fund: A flexi cap fund is an equity fund free to invest in companies of any size, in whatever mix of large, mid and small caps its manager chooses.
Folio: A folio is your account number with a fund house, under which all your holdings in that fund house's schemes are recorded.
Fund of funds: A fund of funds is a mutual fund that invests in other mutual funds or ETFs instead of buying shares and bonds itself.

G

Growth option: The Growth option keeps all of a fund's gains invested and pays nothing out, so the NAV reflects the full return.

H

Hybrid fund: A hybrid fund holds a mix of asset classes, usually shares and bonds and sometimes gold, in proportions set by its SEBI category.

I

IDCW: IDCW, short for income distribution cum capital withdrawal, is the option in which a fund pays part of its NAV out to investors from time to time.
Index fund: An index fund is a mutual fund that copies a market index, holding the same securities in the same proportions, instead of picking them.
Information ratio: The information ratio is a fund's return above its benchmark divided by its tracking error, showing how steadily it has beaten the index.
Interest rate risk: Interest rate risk is the chance that a bond fund's NAV falls because interest rates rise, which lowers the price of the bonds it already holds.

K

KRA: A KRA, or KYC registration agency, is a SEBI-registered body that keeps the KYC records investors complete for mutual funds and other securities.
KYC: KYC, or know your customer, is the one-time identity and address check every investor completes before buying mutual funds in India.

L

Large cap: Large caps are India's 100 largest listed companies by full market value, as ranked on AMFI's half-yearly list.
Liquid fund: A liquid fund is a debt fund that holds money-market instruments maturing within 91 days, often used to hold money for short periods.
Lock-in period: A lock-in period is a set time after each purchase during which units cannot be redeemed, switched or transferred.
LTCG: LTCG, or long-term capital gain, is the profit on fund units held longer than a set period, which for equity funds is 12 months.
Lump sum: A lump sum is a one-time investment of a whole amount in a fund, bought at a single day's NAV.

M

Mid cap: Mid caps are the companies ranked 101st to 250th by full market value on AMFI's half-yearly list.
Modified duration: Modified duration estimates how much a bond fund's NAV changes, in per cent, for each 1 percentage point move in interest rates.

N

NAV: NAV, or net asset value, is the price of one unit of a mutual fund, worked out at the end of each business day.
NFO: An NFO, or new fund offer, is the launch period when a new mutual fund scheme first takes money from investors, usually at ₹10 a unit.
Nominee: A nominee is the person you name to receive your mutual fund units after your death, so they can be transferred without a long legal process.

P

Portfolio turnover: Portfolio turnover shows how much of a fund's holdings were bought and sold over a year, as a percentage of its assets.

R

R-squared: R-squared shows how much of a fund's movement is explained by its benchmark's movement, on a scale of 0 to 100.
Regular plan: A Regular plan is the version of a mutual fund scheme sold through distributors, such as banks, agents and investment platforms.
Riskometer: The riskometer is SEBI's six-level label for how risky a fund's portfolio is, from Low to Very High.
Rolling returns: Rolling returns are the returns for every period of a fixed length, such as three years, starting on each day or month across a fund's history.
RTA (registrar): An RTA, or registrar and transfer agent, keeps a fund house's record of who holds which units and processes investors' transactions.

S

Segregated portfolio: A segregated portfolio, or side pocket, separates a defaulted debt holding from the rest of a scheme, so existing investors share any recovery.
Sharpe ratio: The Sharpe ratio is a fund's return above a risk-free rate divided by its volatility, showing how much return it earned for each unit of risk.
SID and KIM: The SID is a scheme's full offer document and the KIM its short summary, setting out what the fund invests in, what it costs and its risks.
SIP: A SIP, or systematic investment plan, invests a fixed amount in a fund at regular intervals, usually monthly, by automatic debit from your bank.
Small cap: Small caps are listed companies ranked 251st and below by full market value on AMFI's half-yearly list.
Sortino ratio: The Sortino ratio is a fund's return above a risk-free rate divided by its downside deviation, so only falls count as risk.
Stamp duty: Stamp duty on mutual funds is a government levy of 0.005% on the amount you invest, deducted before units are allotted.
STCG: STCG, or short-term capital gain, is the profit on fund units sold within the short-term holding period, taxed at 20% for equity funds.
STP: An STP, or systematic transfer plan, moves a fixed amount from one fund to another of the same fund house at regular intervals.
SWP: An SWP, or systematic withdrawal plan, redeems a fixed amount from a fund at regular intervals and pays it to your bank account.

T

Tracking error: Tracking error measures how much a fund's return varies from its benchmark's, as the standard deviation of the gap between the two.
TRI (total return index): A total return index tracks a market index with all dividends reinvested, so it shows the full return from holding the shares in it.

U

Up and down capture: Up and down capture show what share of its benchmark's gains a fund caught in rising months, and what share of the losses in falling ones.

V

Volatility (standard deviation): Volatility, measured by standard deviation, shows how widely a fund's returns have swung around their average, stated as a yearly percentage.

X

XIRR: XIRR is the yearly rate of return on a series of investments and withdrawals made on different dates, such as a SIP.

Y

YTM (yield to maturity): YTM, or yield to maturity, is the yearly return a bond gives if bought at today's price and held until it is repaid, with every payment made on time.

Glossary

61 mutual fund terms, each in a few plain sentences.

A

Alpha: Alpha is the return a fund earned above or below what its benchmark's moves would predict, in percentage points a year.
AMC (fund house): An AMC, or asset management company, is the SEBI-registered company that runs a fund house's mutual fund schemes.
Arbitrage fund: An arbitrage fund earns the price gap between a share in the cash market and its futures contract, with returns close to short-term interest rates.
ARN: An ARN is the AMFI Registration Number a mutual fund distributor must hold to sell funds and be paid for it.
AUM (assets under management): AUM is the total market value of the money a fund, or a whole fund house, manages on a given day.

B

Benchmark: A benchmark is the market index a fund names as its yardstick, so its returns can be compared with the market it invests in.
Beta: Beta measures how much a fund's returns have moved with its benchmark: 1 means in step, above 1 means larger swings, below 1 smaller ones.

C

CAGR: CAGR, the compound annual growth rate, is the steady yearly return that would turn a starting value into an ending value over a period.
CAS (consolidated account statement): A CAS, or consolidated account statement, lists all your mutual fund holdings across fund houses in one statement, linked by your PAN.
CKYC: CKYC is the central KYC registry run by CERSAI for banks, insurers and investment firms, which identifies you by a 14-digit KIN.
Credit risk: Credit risk is the chance that a bond's issuer pays interest or principal late or not at all, or has its credit rating cut.
Cut-off time: The cut-off time is the hour by which a purchase or redemption must reach the fund house for that day's NAV to apply.

D

Debt fund: A debt fund invests in bonds, government securities and money-market instruments, earning interest and gaining or losing as their prices change.
Drawdown: A drawdown is a fall in a fund's NAV from a previous peak to a later low, shown as a percentage of the peak.

E

ELSS: An ELSS, or equity linked savings scheme, is an equity fund with a three-year lock-in that qualifies for a tax deduction under the old tax regime.
ETF: An ETF, or exchange traded fund, is a fund whose units are listed on a stock exchange and bought and sold there through a demat account.
Exit load: An exit load is a charge, as a percentage of the amount redeemed, taken when units are sold or switched out within a set period of buying.
Expense ratio: The expense ratio is the yearly cost of running a fund, shown as a percentage of its assets and taken out of the NAV every day.

F

Flexi cap fund: A flexi cap fund is an equity fund free to invest in companies of any size, in whatever mix of large, mid and small caps its manager chooses.
Folio: A folio is your account number with a fund house, under which all your holdings in that fund house's schemes are recorded.
Fund of funds: A fund of funds is a mutual fund that invests in other mutual funds or ETFs instead of buying shares and bonds itself.

G

Growth option: The Growth option keeps all of a fund's gains invested and pays nothing out, so the NAV reflects the full return.

H

Hybrid fund: A hybrid fund holds a mix of asset classes, usually shares and bonds and sometimes gold, in proportions set by its SEBI category.

I

IDCW: IDCW, short for income distribution cum capital withdrawal, is the option in which a fund pays part of its NAV out to investors from time to time.
Index fund: An index fund is a mutual fund that copies a market index, holding the same securities in the same proportions, instead of picking them.
Information ratio: The information ratio is a fund's return above its benchmark divided by its tracking error, showing how steadily it has beaten the index.
Interest rate risk: Interest rate risk is the chance that a bond fund's NAV falls because interest rates rise, which lowers the price of the bonds it already holds.

K

KRA: A KRA, or KYC registration agency, is a SEBI-registered body that keeps the KYC records investors complete for mutual funds and other securities.
KYC: KYC, or know your customer, is the one-time identity and address check every investor completes before buying mutual funds in India.

L

Large cap: Large caps are India's 100 largest listed companies by full market value, as ranked on AMFI's half-yearly list.
Liquid fund: A liquid fund is a debt fund that holds money-market instruments maturing within 91 days, often used to hold money for short periods.
Lock-in period: A lock-in period is a set time after each purchase during which units cannot be redeemed, switched or transferred.
LTCG: LTCG, or long-term capital gain, is the profit on fund units held longer than a set period, which for equity funds is 12 months.
Lump sum: A lump sum is a one-time investment of a whole amount in a fund, bought at a single day's NAV.

M

Mid cap: Mid caps are the companies ranked 101st to 250th by full market value on AMFI's half-yearly list.
Modified duration: Modified duration estimates how much a bond fund's NAV changes, in per cent, for each 1 percentage point move in interest rates.

N

NAV: NAV, or net asset value, is the price of one unit of a mutual fund, worked out at the end of each business day.
NFO: An NFO, or new fund offer, is the launch period when a new mutual fund scheme first takes money from investors, usually at ₹10 a unit.
Nominee: A nominee is the person you name to receive your mutual fund units after your death, so they can be transferred without a long legal process.

P

Portfolio turnover: Portfolio turnover shows how much of a fund's holdings were bought and sold over a year, as a percentage of its assets.

R

R-squared: R-squared shows how much of a fund's movement is explained by its benchmark's movement, on a scale of 0 to 100.
Regular plan: A Regular plan is the version of a mutual fund scheme sold through distributors, such as banks, agents and investment platforms.
Riskometer: The riskometer is SEBI's six-level label for how risky a fund's portfolio is, from Low to Very High.
Rolling returns: Rolling returns are the returns for every period of a fixed length, such as three years, starting on each day or month across a fund's history.
RTA (registrar): An RTA, or registrar and transfer agent, keeps a fund house's record of who holds which units and processes investors' transactions.

S

Segregated portfolio: A segregated portfolio, or side pocket, separates a defaulted debt holding from the rest of a scheme, so existing investors share any recovery.
Sharpe ratio: The Sharpe ratio is a fund's return above a risk-free rate divided by its volatility, showing how much return it earned for each unit of risk.
SID and KIM: The SID is a scheme's full offer document and the KIM its short summary, setting out what the fund invests in, what it costs and its risks.
SIP: A SIP, or systematic investment plan, invests a fixed amount in a fund at regular intervals, usually monthly, by automatic debit from your bank.
Small cap: Small caps are listed companies ranked 251st and below by full market value on AMFI's half-yearly list.
Sortino ratio: The Sortino ratio is a fund's return above a risk-free rate divided by its downside deviation, so only falls count as risk.
Stamp duty: Stamp duty on mutual funds is a government levy of 0.005% on the amount you invest, deducted before units are allotted.
STCG: STCG, or short-term capital gain, is the profit on fund units sold within the short-term holding period, taxed at 20% for equity funds.
STP: An STP, or systematic transfer plan, moves a fixed amount from one fund to another of the same fund house at regular intervals.
SWP: An SWP, or systematic withdrawal plan, redeems a fixed amount from a fund at regular intervals and pays it to your bank account.

T

Tracking error: Tracking error measures how much a fund's return varies from its benchmark's, as the standard deviation of the gap between the two.
TRI (total return index): A total return index tracks a market index with all dividends reinvested, so it shows the full return from holding the shares in it.

U

Up and down capture: Up and down capture show what share of its benchmark's gains a fund caught in rising months, and what share of the losses in falling ones.

V

Volatility (standard deviation): Volatility, measured by standard deviation, shows how widely a fund's returns have swung around their average, stated as a yearly percentage.

X

XIRR: XIRR is the yearly rate of return on a series of investments and withdrawals made on different dates, such as a SIP.

Y

YTM (yield to maturity): YTM, or yield to maturity, is the yearly return a bond gives if bought at today's price and held until it is repaid, with every payment made on time.