Mutual fund
A Mutual fund is an investment tool which will enable investors to pool the funds together to be managed by professional institutions. Mutual funds can invest in stocks, bonds , cash and other assets. Please note that mutual fund investors own the shares of mutual fund not the shares of the holding.
Expense ratio
Expense ratio of a mutual fund is the operational expense for a fund. This is sort of an indirect expense for the fund operations. Mutual fund companies will take these expenses before the investers see the fund returns.Exxample if the expense ratio of a fund is 1% and you invest Rs. 10,000 then the expense will be Rs. 100 for a year. This will not be directly taken from the invester but adjusted in the returns (NAV values etc..)
Market Cap
Market capitalization, commonly called market cap, is the market value of a publicly traded company’s outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding.
Market cap measures what a company is worth on the open market. Now it should be easy to understand what a large cap , mid cap and small cap means.
Direct and Regular plans
A Direct plan is what you buy directly from the mutual fund company (usually from their own website), whereas a Regular plan is what you buy through an advisor, broker or distributor (intermediary). In a regular plan, the mutual fund company pays commission to the intermediary. Check the NAV to see the difference.
Asset Management Company (AMC)
A SEBI registered company that handles asset management and investment decisions for mutual funds.
Rebalancing
Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.
Balanced Fund / Hybrid Fund
A balanced fund comprises of both equity and debt funds with 50-75% allocated to equity and the rest to debt scheme.
Equity Funds
These are funds that invest in equity stocks/shares of companies. These are considered high-risk funds but also tend to provide high returns. Equity funds can include specialty funds like infrastructure, fast moving consumer goods and banking to name a few.
Debt Funds
These are funds that invest in debt instruments e.g. company debentures, government bonds and other fixed income assets. They are considered safe investments and provide fixed returns. These funds do not deduct tax at source.
Benchmark
A suitable index against which the performance of the fund is compared. In India Nifty 50 , Sensex 30 are few example of index.
Index Funds
A mutual fund which invests in a portfolio of shares that matches identically the constituents of a well known stock market index.
NAV – Net asset value
The NAV or the net asset value is the total asset value per unit of the mutual fund after deducting all related and permissible expenses.
PE Ratio
The ratio of the market price of the share to earnings per share. This measure is used by investment experts to compare the relative merits of a number of securities
Load
A sales charge assessed by certain mutual funds (load funds) to cover selling costs. A front end load is charged at the time of purchase. A back-end load is charged at the time of sale
Growth / Divident option
A mutual fund investor can decide not to receive any dividends from the scheme he has invested in. Instead, he would prefer to see his investment value grow. This is called the ‘growth option’. In Divident option divident will be paid out regularly.
Basis point
One hundredth of a percentage point.
Fund
An investment vehicle where resources of many investors are pooled for a common benefit.
Alpha
When your mutual fund investment has earned higher returns than its benchmark index, the difference between the two returns is called Alpha.
Beta
Beta is a measure of the volatility or risk of a security or a portfolio in comparison to the market as a whole. Beta of 1 means that security’s price will move along with the market. Beta of less than 1 means that the security will be less volatile than the market. Beta greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.4, it’s theoretically 40% more volatile than the market i.e. if the market rises or falls by 10%, the stock will rise or fall 14% (1.4 x market
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
Rolling Return
Rolling returns are returns taken over a continuous period of time. That is, a particular period of returns is taken at regular intervals over a period of time. For example, you can take 1-year returns every month for 3 years. This will tell you how 1-year returns have moved.
Or let’s say you want to look at 3-year rolling returns for a fund daily over the years from 2012 to 2016. You will essentially be taking the 3-year return for the fund on each day falling in the period from 2012 to 2016. You will get a series of 3-year returns as on each date for the entire 5 years.
