Mutual Fund Glossary |
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| Active Portfolio Management Annualized Return Asset Management Company (AMC) Asset Allocation Back-end Load Balanced fund Bottom-up Investing Closed-ended fund Contingent deferred sales charge (CDSC) Continuous Offer Period Corpus Credit Risk Dated Security Debt fund Dematerialization Depository Participant Discount/Premium to (Net Asset Value) Diversification Dollar Cost Averaging Efficient Portfolio Factor Fund Financial Pyramid Fixed Income Security |
Front-End Load |
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Click Here to Add the GLOSSARY of your Choice
Is a systematic and proactive approach to investment with the
goal of beating the market. This strategy is based on the premise that markets are not
efficient and that there is scope to earn abnormal profits through an active investment
strategy. The return a fund would have generated over a year on a
compounded basis. This method is the best indicator to measure the performance of a fund. Asset Management Company (AMC) A Company registered with SEBI, which takes investment/
divestment decisions for the mutual fund, and manages the assets of the mutual fund. e.g.
for Sun F&C mutual fund , the AMC is Sun F&C Asset Management (India) Pvt. Ltd. It is the process of allocating the overall corpus to
different assets like equities, bonds, real estate, derivatives etc. A kind of redemption charge that an investor has to pay for
withdrawing his money from the mutual fund. It is basically imposed to discourage
investors from exiting the fund. It is also popularly referred to as an Exit Load. A fund that invests substantially both in debt and equity. It is a strategy of selecting the company for investment
first and then cross checking it by evaluating factors pertaining to the industry and the
economy. It is the opposite of the top-down approach to investing. A fund where investors have to commit their money for a
particular period. In India these closed-ended funds have to necessarily be listed on
recognized stock exchanges which provides an exit route. Contingent deferred sales charge (CDSC) An exit charge permitted under the regulations for a no-load
scheme Is the date from which the units are available for sale and
repurchase at a price linked to NAV of the scheme. The total investable funds available with a mutual fund
scheme at any point of time. It is the risk that the issuer of a fixed income security may
default on payment of interest and repayment of principal. It is also referred to as
default risk. A debt instrument that is long term in nature and has a fixed
date of redemption. A fund that invests in debt securities like Government
securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by
investors wanting steady income and not willing to take higher risks. The process of converting the physical /paper shares in
Electronic form. SEBI had made it compulsory to get the shares of some companies
dematerialized. In this process the investor opens an account with a Depository
Participant (DP) and the number of shares the investor holds is shown in this account. An authorized body who is involved in dematerialization of
shares and maintaining of the investors accounts. Discount/Premium to (Net Asset Value) NAV It is the difference between the unit price and NAV. If the
price is higher than the NAV, the units are trading at premium: if the price is lower, the
units are trading at a discount. It is the investment strategy of not putting all one’s
eggs in one basket. By diversifying a portfolio across different industries, overall risk
of the portfolio is reduced. The strategy of dividing the investible amount into a number
of equal parts and buying at regular intervals to take advantage of lower prices. This
strategy is more beneficial in a bear phase. A portfolio which ensures maximum return for a given level of
risk or a minimum level of risk for an expected return. It is a mutual fund that has a core philosophy of investing
in a particular factor or style in the market. They are also referred to as Style Funds.
Examples of factor funds are Mid-cap funds, Low P/E funds, Growth funds etc. An investment plan in the shape of a pyramid structure where
the safest investments are at the base and the riskiest investments at the peak. A type of security that pays fixed interest at regular
intervals. These comprise gilt-edged securities, bonds (taxable and tax-free), preference
shares and debentures. Less risky than equity shares and have little scope for capital
appreciation. An initial amount charged by a fund for its administrative
expenses or for paying commissions to brokers. If the charge is made at the termination or
redemption, it becomes a back-end load. Government securities and bonds, usually with a low interest
rate. Considered safest investments, as the government security is free from default risk.
Originally such certificates were edged with gold and hence the name. Funds that invest predominantly in government securities and
treasury bills. It is good for investors who desire safety of principal and adequate
liquidity. A mutual fund which invests in highly risky but potentially
profitable investments. Such a fund usually has a short life. A fund that invest primarily in equities and has capital
appreciation as its investment objective A professional manager appointed by the Asset Management
Company to invest money in accordance with the objects of the scheme. A method of investment analysis based on the fundamentals
like turnover, net profit, growth, and vision of a company. The boom or depression of the
stock markets are not considered in this analysis. A fund that usually invests in debentures, bonds, and high
dividend shares. Preferred by investors who wants regular income. It pays dividends to the
investors out of its earnings. A fund whose portfolio is benchmarked against a popular index
like the BSE Sensex or the BSE Natex. Such an investment
philosophy reflects the belief that the market is efficient and trying to beat the market
over the long term is futile The dates on which the initial subscription to the units of
the scheme can be made. It is similar to the IPO of an equity issue. This initial offer
period is followed by a continuous offer period. The change in the price of a debt security due to changes in
the market interest rates is the interest rate risk. For debt oriented mutual fund
schemes, this interest rate risk affects the NAV of the fund. A rise in the interest rates
leads to a fall in the price of a fixed income security. An advance installment of the dividend finally declared. More
often one, but sometimes two such payments are made. The final dividend is often at least
equal, and sometimes more. The interim dividend is a fair indication of a company's
profitability, during the working year. A fund that invests its corpus in short term instruments like
call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD). It is the risk in a fixed income security as well as in
equities that these securities may not be sold in the market at close to their value.
Liquidity risk is characteristic of narrow markets like India. A charge by the fund when an investor buys (entry load) or
sells (exit load) units in the fund. Represents the market value of the company. It is a product
of the current market price and the number of shares outstanding. A fully negotiable instrument for short-term debt. A fixed minimum number of shares, in which or in multiples of
which, shares are bought and sold on the stock exchange. The advent of dematerialization
of shares will do away the significance of market lot. This is calculated as total assets minus all expenses and
divided by the number of outstanding units. This is the main performance indicator for a
mutual fund, especially when viewed in terms of appreciation over time. Shares of an open-ended fund, which can be bought directly
from the fund without any sales charge or brokerage. US-64 is an example of a no-load
fund. The price at which units can be bought from a fund. A fund domiciled outside the country where investments are
made. It is often a tax haven, not subject to the tax laws of the holder's country. Ranking equally. After conversion of debentures into shares,
the new shares created carry the same rights as the existing shares of the company to
receive dividends, rights and bonus shares, and to participate in the company's profit and
loss. Exactly the reverse of active portfolio management. The
portfolio manager assumes that markets are efficient and all information is already
analyzed and reflected in the prices of shares. This strategy is based on the premise that
it is impossible to consistently beat the market. Evaluation of credit risk in fixed income securities. This
evaluation is specific to the security rated and is done in India by Crisil, Icra, Care
and Duff & Phelps. It is the date announced by the company/mutual fund, which is
a cut-off date for corporate benefits like dividends, rights, bonus etc. Only investors
whose names appear in the company’s registers on that date are eligible for the said
benefits. It is a plan where the earnings of a mutual fund scheme are
reinvested back in the fund. It is the risk that the interest on fixed income instruments
cannot be reinvested at the same rate. This problem becomes pronounced in a falling
interest rate scenario. Such funds invest only in stocks belonging to a specific
industry usually aimed at growth. For e.g. Kothari Pioneer Infotech Fund. Sector funds are
generally considered to be risky in nature. Financial documents which give the owner specific rights of
ownership; these include: equity and preference shares, debentures, treasury bills,
government bonds, units of mutual fund, and any other marketable documents. Money regularly set aside in a separate fund and invested by
a company for the repayment of debt instruments (fixed deposits, debentures, other loans)
or the redemption of preference shares, or for replacement of assets. Sponsor is the parent organization that contributes the
initial capital of the asset management company (AMC). e.g. Kotak Mahindra Finance is the
sponsor for Kotak Mahindra Mutual Fund. Transferring from one scheme to another in a group of schemes
operated by a Mutual Fund, where the rules so permit. A switching fee may or may not be
charged. A type of fundamental analysis of the health of a company by
examining its strengths(S), weakness (W), business opportunity (O), and any threat (T) or
dangers it might be exposed to. This is the market risk that a security faces and is
essentially non-diversifiable in nature. This risk is caused by macro level factors like
changes in inflation, interest rates, budget announcements etc. Such funds allow the income tax payees to claim a rebate
under the Income Tax Act. A method of prediction of share price movements based on a
study of price graphs or charts on the assumption that share price trends are repetitive.
Since investor psychology follows a certain pattern, what is seen to have happened before
is likely to be repeated. The technical analyst is not concerned with the fundamental
strength or weakness of a company or an industry; he only studies price and volume
behavior. An approach to stock selection which evaluates the prospects
of the economy first, then the prospects of the industry and then finally the prospects of
a particular company to take an investment decision. It is the opposite of a bottom-up
approach to investing. Professional firms, now mostly computerized, which maintain
the records of shareholders of their client companies. These are bills of exchange, i.e., IOUs, issued by the
Reserve Bank of India for short-term loans, 91 days to 364 days. The trustee is the legal owner of the mutual fund. The
trustee takes into custody or under its control all the capital and property of every
scheme of the mutual fund and hold it in trust for the unitholders of the scheme. This is the proportion of risk that is specific to a
particular company. This diversifiable risk could arise due to company specific factors
like operational factors, financial factors, labor unrest etc. Investment in shares whose intrinsic value is above their
market price. Fundamental analysts often make recommendations of value investment, as they
can spot undervalued shares. It is a fund that takes over the non-performing assets of
bank or financial institution at a discount and issues pass-through units to the
investors. A limited company formed to provide venture or risk capital
to new industries. A coupon is an interest warrant attached to a debt
instrument, and the coupon rate is the rate of interest. A zero-coupon bond carries no
interest, but is sold at a discount to its face value, which is the maturity value. The
difference between the discounted price and the maturity value represents the interest on
the bond. |
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