Note: This glossary is specific to mutual funds in India and attempts to convey conceptual clarity in plain English. Some experts may regard what I have done as a gross oversimplification. If that makes you uncomfortable, I suggest searching on the internet for other resources.
| Average Maturity | The weighted average of the residual maturity of each debt instrument in a scheme’s portfolio. | |
| Balanced Funds | A kind of hybrid funds. The term originated from the fact that the early funds sought to balance their allocation between equities and debt instruments. However, over time, to take advantage of tax breaks, it has become the norm for such funds to have a greater allocation towards equities. | |
| Certificates of Deposit | These are debt instruments issued by banks, usually for a period of 7 days to 1 year. These are usually offered to large investors (such as mutual funds) only. | |
| Closed End Funds | Mutual fund schemes that have a fixed tenure. These allow investors to buy units only at the time of the launch of the scheme. At the end of the tenure, these schemes pay back the investors whatever their investments are worth. | |
| Commercial Paper | These are debt instruments issued companies, usually for a period of 15 days to 1 year. These are usually offered to large investors (such as mutual funds) only. | |
| Debt Funds | Mutual fund schemes that invest into debt instruments. In some circles these are also referred to, as income funds because the primary purpose of such funds is seen to generate periodic income from the money invested. In some circles these are also referred to, as fixed income funds. On the other hand, there are some sources that regard income funds as a sub-category of debt funds, and use the term to describe those funds that have the option to widely vary the maturity of the underlying portfolio. | |
| Entry Load | This used to be a charge levied by certain schemes on investors buying units of the scheme. With effect from August 2009, by law, such a charge cannot be levied. | |
| Equity Funds | Mutual fund schemes that invest into equity shares. In some circles these are also referred to, as growth funds because the primary purpose of such funds is seen to grow the money invested. | |
| Exit Load | A charge levied by certain mutual fund schemes on investors selling back their units. | |
| Fixed Income Funds | See Income Funds | |
| Fund house | A loose way of describing the entity behind a mutual fund. | |
| Fund Manager | The individual (or one of the individuals) entrusted with the primary responsibility of investing the money collected under a scheme. | |
| Growth Funds | See Equity Funds | |
| Hybrid Funds | Mutual fund schemes that invest across multiple investment categories, such as equities and debt instruments. | |
| Income Funds | Some sources use this term to describe debt funds because the primary purpose of such funds is seen to generate periodic income from the money invested. In some circles these are also referred to, as fixed income funds. Other sources use this term for certain types of debt funds, usually those which have the option to widely vary the maturity of the underlying portfolio. | |
| Liquid Funds | A kind of debt funds which invest into money market instruments (such as commercial paper, certificates of deposits etc.) with a residual maturity of 91 days or less. | |
| Maturity | The period for which a debt instrument is issued, at the end of which the investor will be paid back his/ her money. | |
| Net Asset Value (NAV) | The value of each unit of a mutual fund scheme. In effect, it indicates how much each unit of a scheme is worth. | |
| Open End Funds | Mutual fund schemes that do not have a fixed tenure. These schemes allow investors to buy and sell back units on an ongoing basis. | |
| Repurchase | The process of a mutual fund buying back units of a scheme from an investor. | |
| Repurchase Price | The price (per unit) at which a mutual fund buys back units of a scheme from an investor. For some schemes this is exactly equal to the NAV of the scheme on that date. For others, the NAV is reduced by an additional charge, referred to, as an exit load. | |
| Sale Price | The price (per unit) at which a mutual fund issues units of a scheme to an investor. Currently, this is exactly equal to the NAV of the scheme on that date. Prior to August 2009, for some schemes, this would have also included an additional charge, referred to, as an entry load. | |
| Systematic Investment Plan (SIP) | An option under a mutual fund scheme, to invest a fixed amount at regular intervals. For investors, who do not have large amounts to invest, this offers a convenient way of accumulating units. | |
| Systematic Transfer Plan (STP) | An option under a mutual fund scheme, to transfer a fixed amount from one scheme to another, at regular intervals. For investors who feel uncomfortable putting a large investment in an equity fund at one go, this offers a convenient way to average out the price at which they buy units. Using this option, the investor could invest the amount in, say, a liquid fund and from there automatically switch a smaller, fixed amount into an equity fund at regular intervals. | |
| Systematic Withdrawal Plan (SWP) | An option under a mutual fund scheme, to withdraw a fixed amount at regular intervals. |
