Glossary of Mutual Fund Terms

Glossary of Mutual Fund Terms and its meanings.

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Glossary of Mutual Fund Terms is very important for Investors. Mutual funds are one of the safest and commonly using investment tool among us. usually, we just invest our money without taking much effort to study the investment. since the mutual fund is managing by a fund manager we don’t have to be too conscious about the process. but we should know the basics at least. in this post, we will discuss the important Glossary of Mutual Fund Terms.

What is Mutual Fund?

A mutual fund is a collection of stocks or bonds that a professional fund manager buys on behalf of the client. The fund manager decides which stocks and how many stocks or bonds to buy. The easiest way to invest in the stock market is by investing your money in the Mutual funds. The money for Mutual Funds will handle by a fund manager who is a stock market expert. the fund manager has great knowledge and high experience in the stock markets and handles your money as a professional.

As an investor and finance enthusiast, we must know the Glossary of Mutual Fund Terms. In this blog, we will discuss the Glossary of Mutual Fund Terms

Also read: Benefits of Mutual fund Investing

Glossary of Mutual Fund Terms

When we invest in mutual funds we have to note and analyze a lot of things. for beginners, it is very difficult to understand some terms related to mutual funds. that is why a glossary of mutual fund terms very important. we have to learn the terms and their meanings for an easy understanding of mutual funds. following are the important Glossary of Mutual Fund Terms


AMC (Asset Management Company): Asset Management Company is the company that manages funds of individual/Public.

AUM (Asset Under Management): Asset Under Management means the total sum of investors which the AMC is controlling. It is the total size of assets which these AMCs manage for their client.

Asset Allocation: Division of an investment portfolio among different categories such as equity, fixed income, liquid, gold funds, etc. It depends on age and ability to tolerate risk.

Age of Fund: Time period that has elapsed since the setting up of the fund.

Automatic Reinvestment: An investment option where dividends declared by a fund are automatically reinvested back into the fund on behalf of the investor and fresh units issued against this reinvestment.


Balanced Fund: Balanced funds combine the growth potential of equities with the low volatility of debt. Usually, they maintain 65% equity and 35% debt.

Balanced maturity tenure: In the case of closed-end schemes, the balance period that remains until the scheme can redeem.that is called the Balance Maturity Tenure of a Scheme.

Back end load: The charge levied on exiting a mutual fund to dissuade investors from withdrawal.

Benchmark: A suitable index against which the performance of the fund is compared. For example, equity funds benchmark against the Sensex or nifty index.

Blue-chip Fund: Mutual funds that invest in stocks of a well-established company. The stocks of such a company are called blue-chip stocks.

Bond: It is a debt investment where the investor lends the money to the company or the government for a particular period and interest rate.

Bond Income Fund: A mutual fund that comprises of corporate or government securities. These funds will focus on income rather than growth.

Bond-rating: It is a grade assigned to a bond indicating its credit quality. Bonds of blue-chip firms have a higher bond rating, which indicates the safety of the investment.


Capital Gain: Capital Gain is an increase in the value of an investment that gives it a higher worth than the purchase price. They may be short-term or long-term and must be claimed on income taxes.

Capital growth: This is a rise in the market value of a mutual fund’s securities, reflected in its net asset value per share.

Closed-end funds: this is a type of mutual fund which works on a fixed period. for example, if the period is 3 years, you can close the fund only after 3 years.

Compounding: When you decide to reinvest your investment income back into the investment, the income starts earning you more income. This is called compounding.

Coupon: he stated interest rate on a bond issuance. The coupon is semiannually paid.

Corpus: The net amount of money invested in a scheme collectively by all investors.

Conversion Privilege: The privilege that a shareholder gain through mutual funds to utilize the income obtained or capital gains for the purchase of additional shares without any sales charge.

Credit quality: Average credit quality reflects the overall credit quality of the portfolio. Credit quality is given as an average credit rating of each bond, weighted by the relative size in the portfolio.

Custodian: Custodian is the trust company or bank that takes care of mutual fund’s assets and portfolio of securities or maintains a record of them. Custodian only serves the purpose of safekeeping and plays no role in portfolio management


Date of Inception: The date on which the fund started operation.

Debt funds: Debt Funds are the funds that invest in fixed income instruments like money, market instruments, bonds, government securities, etc.

Diversification: The process of investing in different asset classes. it will reduce the risk.

Dividend: This is the distribution of a portion of the profits by the company/ mutual fund to the shareholders/unit holders.

Dividend Distribution Tax: When a company decides to pay dividends to its equity shareholders or when a debt mutual fund scheme decides to pay dividends to its unitholders, they have to deduct and pay tax before distributing the dividend. This is the Dividend Distribution Tax.

Dividend payout Option: A mutual fund investor can decide to receive dividends declared by the scheme or to reinvest the dividend to the existing scheme. This is the dividend payout option.

Dividend Frequency: This is the number of times in a year that dividend is distributed to the shareholders.

Dividend History: The track record of the amount of dividend paid by a company/ mutual fund scheme till date.

Distributor: An individual or corporation involved in the direct buying of shares from the fund and reselling them to other investors.

Duration: Its a measure of how sensitive a fund is to shift in interest rates. The longer a fund’s duration, the more vulnerable it is to interest rate fluctuations.

Dividend striping: The investor invests with the intention of exiting the fund as soon as the dividend is paid.

Dividend plan: In dividend plans, the investor receives timely dividends when they are declared.


Entry Load: A Fees that are required to be paid when you investing in a fund.

Exit Load: A Fees that are required to be paid when you redeem your fund.

ETF (Exchange Traded Fund): Exchange-Traded Fund, is marketable security, that tracks an index, a commodity, bonds, or a basket of assets like an index fund.

ELSS(Equity Linked Savings Scheme): A special product offered by mutual funds. The Equity Linked Savings Schemes (ELSS) give their investors the option of saving tax while participating in the growth of the capital market. 

Equity Schemes: Growth funds that aim at providing capital appreciation over the medium to long term by investing a major part of their corpus in the equities.

Expense Ratio: The expense ratio is the annual percentage of a fund’s assets that are paid out in expenses such as management fees and any other fee that is spent on the fund’s operation.

Exchange privilege: A option to investors can make a midway switch from one scheme to another.


Face value: This is the original issue price of one unit of a scheme, usually ₹10.

Factor funds: Mutual funds that invest with a philosophy of investing with a particular factor or style. They are also sai’d to be style funds at times.

Fund: An investment vehicle where resources of many investors are pool’d for a common benefit.

Fund manager: Fund Manager- Who has the expertise to manage an investor’s money in line with the Mutual Fund’s stated investment objectives like income generation and capital appreciation.

Floating rate: Some debt securities reset the interest rate payable on the security depending on changes in the market interest rate. These debt securities are to offer a ‘floating rate’ of interest.

Fund family: A mutual fund company that offers various funds for different investment objectives

Floating rate debt:  A bond whose stated interest rate changes as per market fluctuations.

Folio number: A unique number assigned by a mutual fund to identify an investor’s investment account with it.


Gilt fund: A mutual fund that invests in government securities and treasury bills. As such, they stick to high-quality debt instruments and have adequate liquidity.

Global fund: A mutual fund investing in stocks or bonds all over the world.

Growth option: A mutual fund investor can decide not to receive any dividends from the scheme. and the investor can reinvest that dividend to the existing fund and let it compound, this is a growth option.

Holding period: Duration for which a person stays invested in a scheme. Depending on the scheme type and investor requirement, this period can vary from 1 day to several years.

Hedge fund: Hedge funds use a combination of different techniques to get higher returns.


Index funds: Index funds are design’d to replicate the portfolio of a particular index such as the S&P BSE Sensex, NSE Nifty, etc.

Income fund: The primary aim of this mutual fund is to enhance current income rather than long-term capital growth. This mutual fund invests in stocks and bonds which earn a higher return.

Investment strategy: A plan used to build an investment portfolio to achieve the desired objective.

Investment objective: The long term or short term financial goal that an investor or mutual fund strives for.

Indexation: When you invest in a debt fund and decide to redeem it after more than a year, the income tax law allows you to increase the cost of your purchase based on the inflation rate. This is indexation.

Inflation: Inflation is the rate at which the general level of prices for goods and services is rising and consequently, the purchasing power of currency is falling.

Intermediate bond fund: A mutual fund investing in bonds with a deposit period ranging from 5-10 years.

Interest rate sensitivity:  Interest rate sensitivity is an indication of how sensitive a fund is to changes in interest rates. A fund with a longer tenure is more susceptible to interest rate changes and hence more volatile as a fund than a fund with a shorter tenure.

Initial purchase: The minimum amount required to open a new account. This amount notifies the investor of the monetary constraints he has as a shareholder. A fund’s initial purchase is an important criterion to check while selecting a suitable mutual fund.

Joint ownership: As the name implies, more than one person can participate in a single fund. In the case of joint ownership, both the investors should be KYC compliant and the taxation impact falls on the first holder.

Junk Bond: A bond which is rate’d below the investment grade and denotes high risk to the investor.


KYC(Know Your Client): KYC means the procedure prescribed by SEBI for identifying and verifying the identity of clients with the help of proof of address, identity card, and compliance with rules, regulations, guidelines, and circulars issued by the SEBI Board or any other authority for Prevention of Money Laundering from time to time.

KYC KRA(KYC Registration Agency): These are SEBI-register’d agencies that maintain investor records on behalf of capital market service providers. This eliminates the need for different service providers to keep repeating KYC processes for the same customer over and over again.


Liquidity: An asset is liquid when it can sell in the market quickly for cash. Investors are always advise to keep some assets that they can sell to get cash quickly in case of an emergency.

Liquid fund: Liquid funds invest in Debt and money market securities with maturity of up to 91 days only.

Load: Mutual funds charge fees to their investors in order to meet the expenses of maintaining the schemes. This is called a load. Usually, the load is charged when investors redeem their units before completion of a specific period.

Lock-in period: Lock-in period is the time period when the investor is not allow to redeem the units that he has purchased in the mutual fund.

Long term capital gain: The revenue generated by selling a mutual fund share that has been held for more than a year.

Long term bond fund: A mutual fund that invests in bonds with a maturity period of more than 10 years.


Market value: The market value of a security is the price at which it can be bought or sold on the exchange.

Market capitalization: Market capitalization is the total market value of all the shares issue by a company at a given point of time. It is calculate by multiplying the total number of shares by the current market price of one share.

Maturity: the date on which the investor is paid back his principal amount as well as all income due to him on that investment.

Management Fee: A fee charged by the professional fund manager to manage an investment portfolio on behalf of the investor.

Midcap fund: A fund which invests in stocks of mid cap companies.

Money market Instruments: Debt instruments that have a short maturity period, usually of less than a year.

Mutual Fund: Mutual fund is a collective investment mechanism that pools resources of many investors issues them units, and invests on their behalf.


NAV(Net Asset Value): Net Asset Value is the worth in, in market terms, for each unit of the fund. It is calculate as the market value of all assets. In the fund fewer liabilities and expenses divided by the outstanding number of units in the fund. Most schemes announce their NAVs on a daily basis.

NAV (in Rs. Terms)= Market or Fair Value of Scheme’s investments + Current Assets – Current Liabilities and Provision / Number of Units outstanding under Scheme on the Valuation Date

NFO(New Fund Offer): When a mutual fund launches a new scheme and invites investors to invest in the scheme, it is New Fund Offer.

Nominee: An investor must appoint a nominee to receive his investments in case of his death. The nominee can be the spouse, a sibling, a child, etc. Investors can even have more than one nominee.


Open-ended schemes: Open-ended funds are available for investors to purchase and redeem units continually on business days. Open-ended funds can theoretically exist in perpetuity.

Operating expenses: These are the costs involve in running a mutual fund like transaction costs, advisory fees, marketing expenses, etc.


Portfolio: A portfolio refers to the collection of investments (shares, bonds, etc.) held by a mutual fund scheme or owned by an investor.

Portfolio manager: The portfolio manager is hire by the fund advisor to handle investment decisions regarding the buying and selling of securities for the mutual funds according to the fund’s objective.

Price of units: Price offered by a mutual fund for repurchase or sale of a unit on a daily basis.

Prime rate fund:  A mutual fund that purchases some percentage of corporate loans from banks and pays the interest to shareholders.


Rate of return: The pace of growth of an investment, usually on a per annum basis, expressed on a base of hundred or percentage terms in other words.

Repurchase/redemption: When a mutual fund investor wants to exit from his mutual fund investment, he can sell back the units to the mutual fund and receive cash.

Rupee cost averaging: Under this system, the investor buys units of the fund at regular intervals of time rather than buying them all at the same time. This allows him to take advantage of increases and decreases in the price of the units. Purchases at low prices offset the purchase made at high prices allowing him to hold the units at a reasonable average cost.

Refund: The return of money to the payer after the closure / failure of a transaction.

Redeemable: An instrument that can sell back to the issuer.

Redemption fee: A charge levied on the redemption of a security.

Risk: Measure of the ability of an investor to withstand market fluctuations and volatility.

Rollover option: This is an optional offer by some funds where after redemption investors can choose to reinvest the amount if the fund’s performance is good.


Sale price: This is the price at which the mutual fund sells units of a scheme to investors.

Sale charge: A fee levied on the sale transaction of a security.

SAI(Statement of Additional Information): This is a supplementary document to the main offer document of a mutual fund scheme. It contains additional or changed information about the scheme and its operations.

Scheme information document: This is an information document, which is prepare by a mutual fund on the launch of a new scheme. It offers all details about the scheme like the price, time period, method of purchase, etc. The fund has to submit this document to SEBI to obtain its observation before the launch of the scheme. Investors are advise to read this document thoroughly before investing in the scheme.

Securities: These are financial instruments (equity shares, bonds, etc.) that can be bought or sold in the open market by investors.

SEBI: Securities and Exchange Board of India, which is the capital market regulator in India.

Sector funds: A sector fund invests in securities of a certain sector or industry such as Fast Moving Consumer goods (FMCG), pharmaceuticals, Information Technology, etc. as specified in the investment objective.

Series funds: A mutual fund whose prospectus allows for multiple portfolios. Portfolios can be specialize or broad.

Standard deviation: This is a statistical measure of the extent of the variance of a fund’s performance. A fund is said to have a higher standard deviation when its performance deviates widely; this indicates that there is a greater potential for volatility.

Switching facility: This is an option available to mutual fund investors to switch their investments, either fully or partially, between schemes offered by the same mutual fund and/or options (dividend payout, dividend reinvestment, and growth).

Stocks: A financial security that represents a part ownership of a company.

Subsequent purchase: The smallest additional purchase a fund allows an existing account

SIP(Systematic Investment Plan): Under this system, the investor buys units of the fund at regular intervals of time rather than buying them all at the same time. Purchases at low prices offset the purchase made at high prices allowing him to hold the units at a reasonable average cost.

SWP(Systematic Withdrawal Plan):  is a facility that allows the investor to withdraw money from his existing mutual fund account at predetermined intervals.

STP(Systematic Transfer Plan): This is a combination of SIP and SWP; it is a strategy where an investor transfers a fixed amount of money from one scheme to another.


Tax saving fund: These are equity funds that offer tax benefits on investing. Currently, there are two kinds of tax-saving funds – Equity Linked Savings Schemes (ELSS) and Rajiv Gandhi Equity Saving Scheme (RGESS). These offer tax benefits under section 80C (for ELSS) and section 80GG (for RGESS).

Total return: Sum of all sources of returns of an investment over a specified time period.

Transaction cost: Expenses and charges incurred in a particular financial transaction.


Unit: Just like an investor buys shares of a company, he buys units of a mutual fund. A unit is nothing more than a share in a mutual fund scheme.

Unit holder: An investor who holds mutual fund units.

Unload: Selling units of mutual fund.

Venture capital fund: An investor who holds mutual fund units.


Yield: Yield is the dividend or interest that an investor gets on an investment. It is normally expressing as a percentage with respect to the current market price of the investment. The yield on a debt security = interest divided by the market price of the debt security

Yield on an equity = dividend divided by market price of the equity share

YTM(Yield To Maturity): Yield to Maturity or YTM is the yield expect on an investment if it is holding by the investor till its maturity date.

Zero coupon Bond: A bond that pays no coupons but compensates investors with price gains.

Final Thoughts

If you are an investor it is very important to know the Glossary of Mutual Fund Terms. it will help you to improve your knowledge of mutual funds. Also, it will help you to understand things easily. a good investor should know important terms related to the mutual fund. in this post, we discussed the Glossary of Mutual Fund Terms. i hope this post will help you to improve your mutual fund knowledge.

Happy Investing

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