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A Mutual Fund Glossary

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A Mutual Fund Glossary

Annualised Returns: A method used to calculate returns for, or as for, an entire year. Annualising returns enables easier comparisons between funds. It’s also a better indicator of a fund’s performance as it incorporates the effect of compounding.

Asset Class: All investment vehicles can be categorised as asset classes. Individual schemes concentrate on one of the investment options-shares, bonds and debentures, gilts and money market instruments-which become its asset class.

Corpus: The total investible funds a scheme has. If already invested, the corpus is worth the current market value of the instruments it has put its money in.

Debt Fund: Investments here are in debt instruments. The idea is to generate a steady income while protecting the principal. Returns are better than money market and gilt funds, thus finding favour with risk-averse investors.

Discount/Premium to NAV: The difference between the unit price and the NAV in percentage terms.

Gilt Fund: Money parked in government securities and T-Bills. Ideal for investors unwilling to walk into the risk zone.

Equity Fund: Where most of the corpus is put into stocks, the riskiest of money market instruments circulating in India. Returns are linked to the bourses and volatility of the counters are reflected in the NAVS of these schemes.

Income/Growth plans: While an income plan pays periodic dividends, the other ploughs back earnings. Growth plans target those who are in the market for capital appreciation.

Load: A charge by the fund when an investor buys or sells units of a scheme. SEBI norms stipulate the load at 7 per cent-a fund can’t quote a difference of over 7 per cent between the sale and repurchase prices of its units. Load has been factored in to reduce the redemption burden on funds.

Money Market Funds: A fund that parks money in T-Bills or short-term commercial paper. Liquidity here is high but capital appreciation low.

Net Asset Value (NAV): The performance indicator of a fund. Calculated as total assets minus all expenses and divided by the number of outstanding units.

Redemption: When a closed-end fund completes its tenure, the units are due for redemption. Units are redeemed at the existing NAV and investors refunded their money. If an investor wishes to stay on in a fund, his units are rolled over.

Sector Fund: These invest in equities of a specific sector. Sector funds aim at growth, which can be lucrative if the particular industry is doing well.

Tax-saving Fund: Such allow investors to claim a rebate under Section 88 of the Income-Tax Act. Since the maximum rebate allowed is Rs 2,000 annually, the maximum one can invest in a scheme to avail of tax benefits is Rs 10,000 in a year.

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