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Mutual Fund Terms

By: Yogin Vora on August 25, 2009 No Comment

Glossary: Some terms related with Mutual Funds:

ACCOUNT STATEMENT:
A document issued by the mutual fund, giving details of transactions and holdings of an investor.

ADJUSTED NAV (TOTAL RETURN):
The net asset value of a unit assuming reinvestment of distributions made to the investors in any form.

ADVISOR:
Your financial consultant who gives professional advice on the fund’s investments and who supervise the management of its assets.

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.

APPRECIATION:
When an investment increases in value, it appreciates. For example, a equity share whose price goes from Rs. 20/- to Rs. 25/- has appreciated by Rs. 5/-.

APPLICATION FORM:
Form prescribed for investors to make applications for subscribing to the units of a fund

ASSET:
Property and resources, such as cash and investments, comprise a person’s assets; i.e., anything that has value and can be traded. Examples include stocks, bonds, real estate, bank accounts, and jewellery.

ASSET ALLOCATION:
When you divide your money among various types of investments, such as stocks, bonds, and short-term investments (also known as “instruments”), you are allocating your assets. The way in which your money is divided is called your asset allocation.

ASSET MANAGEMENT COMPANY / AMC / INVESTMENT MANAGER / Reliance Capital Asset Management Ltd.:
It is the investment manager for the mutual fund. It is a company set up primarily for managing the investment of mutual funds and makes investment decisions in accordance with the scheme objectives, deed of Trust and other provisions of the Investment Management Agreement.

AUTOMATIC INVESTMENT PLAN:
Under these plans, the investor mandates the mutual fund to allot fresh units at specified intervals (monthly, quarterly, etc.) against which the investor provides post-dated cheques. On the specified dates, the cheques are realized by the mutual fund and on realization, additional units are allotted to the investor at the prevailing NAV.

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 SHEET:
A financial statement showing the nature and amount of a company’s assets, liabilities and shareholders’ equity.

BALANCED FUND:
A mutual fund that maintains a balanced portfolio, generally 40% bonds and 60% equity.

BALANCE MATURITY TENURE OF A SCHEME:
In the case of close-ended schemes, the balance period till the redemption of the scheme.

BENCHMARK:
A parameter with which a scheme can be compared. For example, the performance of a scheme can be benchmarked against an appropriate index.

BOND:
An interest-bearing promise to pay a specified sum of money — the principal amount — due on a specific date.

BOND FUNDS:
Registered investment companies whose assets are invested in diversified portfolios of bonds primarily fixed income securities.

BROKER:
One who guides the investors on one or more investments and facilitates the process of investment. A broker is a member of a recognized stock exchange who buys and sells or otherwise deals in securities.

BROKERAGE:
The fee payable to a broker for acting as an intermediary in a transaction. For example, brokerage is payable by a fund for getting fresh investments from investors.

BULL MARKET:
Period during which the prices of stocks in the stock market keep continuously rising for a significant period of time on the back of sustained demand for the stocks.

CAPITAL:
This is the amount of money you have invested. When your investing objective is capital preservation, your priority is trying not to lose any money. When your investing objective is capital growth, your priority is trying to make your initial investment grow in value.

CAPITAL APPRECIATION:
As the value of the securities in a portfolio increases, a fund’s Net Asset Value (NAV) increases, meaning that the value of your investment rises. If you sell units at a higher price than you paid for them, you make a profit, or capital gain. If you sell units at a lower price than you paid for them, you’ll have a capital loss.

CAPITAL GAINS:
The difference between an asset’s purchased price and selling price, when the difference is positive. A capital loss would be when the difference between an asset’s purchase price and selling price is negative.

CAPITAL GROWTH:
A rise in market value of a mutual fund’s securities, reflected in its NAV per share. This is a specific long-term objective of many mutual funds. Capital Loss realized when an instrument or asset is sold at a price below its cost.

CAPITAL MARKET:
The market where capital funds, debt (bonds) and equity ( stocks) are traded.

CASH & OTHER CATEGORY: A mutual fund asset allocation theory that includes net cash, short-term securities, and any other securities (such as options) not included in other asset allocation categories.

CLOSED-ENDED MUTUAL FUND: They are schemes that have a pre-specified maturity period generally ranging from 2 to 15 years. One can invest directly in the scheme at the time for the initial issue and thereafter transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the scheme’s net asset value (NAV) on account of demand and supply situation, unitholders’ expectations and other market factors. Some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.

COMMISSION:
The broker’s or agent’s fee for buying or selling securities for a client. The fee is usually based on a percentage of the transaction’s market value.

CONVERTIBLE BOND:
A corporate bond, usually a junior subordinated debenture, which can be exchanged for shares of the issuer’s common stock.

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

CURRENT INCOME:
Monies paid during the period an investment is held. Examples include bond interest and stock dividends.

CURRENT LOAD:
Load structure applicable currently. Funds keep revising the load structures from time to time.

CURRENT MARKET VALUE:
The amount a willing buyer will pay for a bond today, which may be at a premium (above face value) or a discount (below face value).

DEBT /INCOME FUNDS:
Funds that invest in income bearing instruments such as corporate debentures, PSU bonds, gilts, treasury bills, certificates of deposit and commercial papers. These funds are the least risky and are generally preferred by risk-averse investors.

DIVERSIFICATION:
Diversification is the concept of spreading your money across different types of investments and/or issuers to potentially moderate your investment risk.

DIVIDEND:
Income distributed by the Scheme on the Units

DIVIDEND PLAN:
In a dividend plan, the fund pays dividend from time to time as and when the dividend is declared.

DIVIDEND REINVESTMENT:
In a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Hence instead of receiving dividend, the unit holders receive units. Thus the number of units allotted under the dividend reinvestment plan would be the dividend declared divided by the ex-dividend NAV.

ENTRY LOAD:
It is the load charged by the fund when one invests into the fund. It increases the price of the units to more than the NAV and is expressed as a percentage of NAV.

EQUITY SCHEMES:
Schemes where more than 50% of the investments are done in equity shares of various companies. The objective is to provide capital appreciation over a period of time.

EXPENSE RATIO:
Annual percentage of fund’s assets that is paid out in expenses. Expenses include management fees and all the fees associated with the fund’s daily operations.

EXIT LOAD:
It is the load charged by the fund when one redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.

FACE VALUE:
The original issue price of one unit of a scheme

FII:
Foreign Institutional Investors, registered with SEBI under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995.

FUND MANAGER:
Appointed by the AMC, he is the person who makes all the final decisions regarding investments of a sche

GROWTH FUND:
A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential. Growth Stocks Stocks of companies that have shown or are expected to show rapid earnings and revenue growth. Growth stocks have relatively more risk than other conventional forms of investment.

INCOME FUND:
A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest.

INDEX FUND:
A type of mutual fund in which the portfolios are constructed to mirror a specific market index. Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the market, which they are mirroring.

INITIAL OFFER/INITIAL ISSUE:
Offer of Reliance Income Fund units during the initial offer period.

INITIAL OFFER PRICE:
The price at which units of a scheme are offered in its Initial Public Offer (IPO).

ISSUED SHARE CAPITAL: This is the total number of shares a company has made publicly available multiplied by the total nominal value of the shares. A company may have 10 million shares in issue, each with a nominal value of Re. 1. So the issued share capital is Rs. 10 million.

LIQUIDITY:
The ability to buy or sell an asset quickly or the ability to convert to cash quickly

LIQUID FUNDS /MONEY MARKET FUNDS :
Funds investing only in short-term money market instruments including treasury bills, commercial paper and certificates of deposit. The objective is to provide liquidity and preserve the capital.

LOAD: A charge that may be levied as a percentage of NAV at the time of entry into the Scheme/Plans or at the time of exiting from the Scheme/Plans.

LOCK IN PERIOD:
The period after investment in fresh units during which the investor cannot redeem the units.

MANAGEMENT FEE:
Money paid by a mutual fund to its investment manager or advisor for overseeing the portfolio. A management fee is usually between one-half and one percent of the fund’s net asset value.

MATURITY OR MATURITY DATE:
The date upon which the principal of a security becomes due and payable to the security holder.

MATURITY VALUE:
The amount (other than periodic interest payment) that will be received at the time a security is redeemed at its maturity. On most securities the maturity value equals the par value.

MUTUAL FUNDS:
An investment company that pools money from its unitholders and invests that money into a variety of securities, including stocks, bonds, and money-market instruments. This represents a way of investing money into a professionally managed and diversified pool of securities that hopefully will provide a good return on unitholders’ money.

MUTUAL FUND REGULATIONS:
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended up to date and such other Regulations, as may be in force from time to time, to regulate the activities of the Mutual Fund.

NAV:
Net Asset Value of the Units in each plan of the Scheme is calculated in the manner provided in this Offer Document or as may be prescribed by Regulations from time to time. The NAV will be computed upto four decimal places. NAV Formula :

Market / Fair Value of Scheme’s investments (+) Receivables (+) Accrued Income (+) Other Assets (-)
Accrued Expenses (-) Payables (-) Other Liabilities
———————————————————————————————————————————–
Number of Units Outstanding

NAV Change:
The difference between today’s closing net asset value (NAV) and the previous day’s closing net asset value (NAV).

NAV Change %:
The percentage change between today’s closing net asset value (NAV) and the previous day’s closing net asset value (NAV)

NET WORTH:
A person’s net worth is equal to the total value of all possessions, such as a house, stocks, bonds, and other securities, minus all outstanding debts, such as mortgage and revolving credit lines.

NET YIELD:
Rate of return on a security net of out-of-pocket costs associated with its purchase, such as commissions or markups.

NON PERFORMING INVESTMENTS:
Part of the portfolio investment of a debt fund which is not making interest payment or principal amount repayments in time.

OFFER DOCUMENT OR PROSPECTUS:
The official document issued by mutual funds prior to the launch of a fund describing the characteristics of the proposed fund to all its prospective investors. It contains information required by the Securities and Exchange Board of India, such as investment objective and policies, services, and fees. Individual investors are encouraged to read and understand the fund’s prospectus

OPEN-ENDED SCHEMES/ FUNDS:
Scheme of a mutual fund where purchase or sale of units is allowed on a continued basis. Funds that do not have any fixed maturity and are continuously open for subscription and redemption. The key feature is liquidity. One can conveniently buy and sell the units held at the NAV related price.

OPENING NAV:
The NAV disclosed by the fund for the first time after the closure of an NFO.

PORTFOLIO:
It refers to the total investment holdings of the fund.

PORTFOLIO CHURNING:
It refers to the changes made to the portfolio keeping in view the market conditions. It includes both buying and selling of holdings and is aimed at giving a better yield to the investor.

REDEMPTION:
The paying off or buying back of units of a mutual fund / bond by the issuer.

REDEMPTION FEE:
A fee charged by a limited number of funds for redeeming, or buying back, fund units.

REDEMPTION PRICE:
The price at which a mutual fund’s units are redeemed (bought back) by the fund. The redemption price is usually equal to the current NAV per unit.

RETURNS:
The dividend and capital appreciation accruing to the investor on the investment held by him.

SCHEME:
A mutual fund can launch more than one scheme. With different schemes, in spite of there being a common trust, the assets contributed by the unit holders of a particular scheme are maintained and managed separately from other schemes and any profit/loss from the assets accrue only to the unit holders of that scheme.

SYSTEMATIC INVESTMENT PLAN (SIP):

Program that allows an investor to provide post-dated cheques to the mutual fund to allot fresh units at specified intervals (usually monthly or quarterly). On the specified dates, the cheques are realized by the mutual fund and additional units at the prevailing NAV are allotted to the investor. This enables him to invest as little as Rs 1000 a month and take advantage of rupee cost averaging.

SYSTEMATIC WITHDRAWAL PLANS (SWP):
A plan offered with some schemes under which post-dated cheques for fixed amounts (as may be fixed by the fund) are issued to the investors for monthly, bi-monthly or quarterly withdrawals. The withdrawals are as per the requirements of the investor specified by him/ her at the time of investment.

TRANSACTION SLIP:
A brief form to be filled at the time of additional purchases or redemption.

TRUST FUND:
The corpus of the Trust, unit capital and all property belonging to and i or vested in the Trustee

UNIT:
A Unit represents one undivided share in the assets of the Schemes.

UNIT HOLDER:
A person who holds Unit(s) under any plan of the Scheme.

VALUATION:
Calculation of the market value of the assets of a mutual fund scheme at any point of time

VOLATILITY:
In investing, volatility refers to the ups and downs of the price of an investment. The greater the ups and downs, the more volatile the investment

WEEK HIGH:
The highest market value of a unit (in terms of NAV) during the immediately preceding 52 weeks.

WEEK LOW:
The lowest value of a unit (in terms of NAV) during the immediately preceding 52 weeks owns, the more volatile the investment.

YIELD:
Distributions form investment income, usually expressed as a percentage of net asset value or market price. Unlike total return, yield has the single component of investment income and does not include capital gains distributions or capital appreciation of underlying shares.

ZERO-COUPON BOND:
A bond where no periodic interest payments are made. The investor purchases the bond at a discounted price and receives one payment at maturity. The maturity value an investor receives is equal to the principal invested plus interest earned compounded semi-annually at the original rate to maturity. Interest income from zero-coupon bonds is subject to taxes annually even though no payments will be made.

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