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Mutual Fund - Glossary

Mutual Fund - Fillable Forms

Benefit of Use of Fillable Forms -

  1. No risk of wrong records due to illegible or unclear filled forms
  2. They are free from cutting & overwriting which may create problem at the time of redemption

Understanding various terms of Mutual Fund (MF)

What is Mutual fund and why to invest in Mutual Fund

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A

Account Statement

A statement issued by the mutual fund, giving details of transactions and holdings of an investor. This is normally issued in lieu of a unit certificate.

Adjusted NAV (Total Return)

The notional net asset value of a unit assuming reinvestment of distributions made to the investors in any form. This is relevant to calculate the total returns from the fund.

Age Of Fund

The time elapsed since the launch of the fund.

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.

Annualized Returns

Absolute returns over a period (which could be larger or smaller than a year) aggregated to a period of one year. Used for the purpose of comparing returns over different periods.

Applicable NAV

The NAV at which a transaction is effected. A cut-off time is set by the fund and all investments or redemptions are processed at that particular NAV. This NAV is relevant if the application is received before that cut-off time. If the application is received thereafter, it will be treated as the next day's application and allotted the relevant NAV.

Application Form

Form prescribed for investors to make applications for subscribing to the units of a fund. Some funds also accept applications on plain paper.

Asset Allocations

Allocation of the funds held by the mutual fund to various categories of assets such as equity, debt and others. This is based on the investment objective of the scheme.

Asset Management Company (AMC)

The company vested with the responsibility of managing investments of the schemes of a fund in line with the stated investment objective of each scheme.

Automatic Investment Plan

Under these plans, the investor mandates the mutual fund to allot fresh units at specified intervals (monthly, quarterly) against which the investor provides post-dated cheques. On the specified dates, the cheques are realised by the mutual fund and on realisation, additional units at the prevailing NAV are allotted to the investor. This inculcates a healthy and disciplined saving habit.

Average cost method

This is the average price of units purchased by the investor calculated by adding up all the costs involved in purchasing all the units of investment and then dividing the sum by the total number of units. .

Average Maturity

Average time to maturity of all fixed-period investments in the portfolio of a scheme.

B

Back End Load

The difference between the NAV of the units of a scheme and the price at which they are redeemed. The difference is charged by the fund.

Balance Maturity Tenure Of A Scheme

In the case of close-ended schemes, the time remaining until the redemption of the scheme.

Balanced Funds

Funds that invest in equity and debt instruments in varying proportions. These funds supplement capital appreciation from equities with a steady return from debt instruments. To a large extent, the returns depend on the performance of the equity portion in the portfolio. There is some flexibility in changing the asset composition between equity and debt and fund managers exploit this to buy the best asset class at each time.

Benchmark

A parameter with which something can be compared with. For example, the performance of an equity scheme can be benchmarked against the BSE Sensex. In this case, the BSE Sensex will be known as the benchmark index.

Beta

It shows the sensitivity of the fund to movements measured against the benchmark. A beta of more than 1 indicates an aggressive fund and the value of the fund is likely to rise or fall more than the benchmark. A beta of less than 1 implies a defensive fund that will rise or fall less than the benchmark. A beta of 1 indicates that the fund and the benchmark will react identically.

Bond

A debt instrument issued either by a company, the government or its agencies. It carries a fixed interest and promises return of principal on a specified date.

Bonus

Additional units allotted to investors on the basis of their existing holdings. Basically, there is a split of existing units into more than one unit resulting in the reduction of the NAV per unit.

BSE Index

An index reflecting the stock prices of 30 companies listed on the Bombay Stock Exchange (BSE) which is taken to be representative of the stock market movement.

C

Capital Gains

As per the Income Tax Act, the gains made on sale of securities and certain other assets (including units of mutual funds) are charged to capital gains tax. The gains can be long-term or short-term depending on the period of holding of the asset and are charged to tax at different rates. Gains on mutual fund units held for a period of 12 months or more are long-term gains.

Close-ended schemes

Schemes which have a fixed tenor of maturity.

Corpus

The total amount of money invested by all the investors in a scheme.

Cost Of Churning

The portfolio of a scheme changes from time to time. The rate of change depends on the style of the fund manager (whether he follows the buy-and-hold philosophy or aggressively churns the fund) and on the type of investors (whether the fund constantly receives fresh subscriptions and redemption requests). Such portfolio changes have associated costs of brokerage, custody fees, transaction fees and registration fees which lower the returns. These costs comprise the cost of churning.

Current Load

Load structure applicable currently. Funds keep revising the load structures prospectively from time to time.

Custodian

Agencies which have custody of all the securities purchased by the mutual fund. The service can be provided only by a person who has been granted a certificate of registration to carry on the business of custodian of securities under the SEBI regulations.

Cut-off Time

In respect of all mutual funds regulated by SEBI, fresh subscriptions and redemptions are processed at a particular NAV. Every fund specifies a standard / uniform cut-off time in respect of fresh subscriptions and redemption of units. All requests received before the cut-off time are processed at that day's NAV and thereafter the request is treated as received on the next day.

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