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Financial Terms Guide
1. 12/1/2014 Financial Terms and Definition | Financial Dictionary
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A B C D E F G H I L M N O P R S T U V Y Z
Glossary
Account statement
A document similar to a bank account statement that indicates the mutual fund units owned. A statement is issued each time
the investor carries out a transaction.
Annual report
A writeup given to shareholders containing the yearly record of a mutual fund's performance. The report also informs the
investor about the fund's earnings and operations. Reports are sent out yearly.
Assets
Assets are a resource of money value such as stocks, bonds, real estate and cash.
Asset class
Different types of investments such as stocks, bonds, real estate and cash.
Asset Management Company (AMC)
The trustee delegates the task of floating schemes and managing the collected money to a company of professionals, usually
experts who are known for smart stock picks. This is an asset management company (AMC). AMC charges a fee for the
services it renders to the MF trust. Thus the AMC acts as the investment manager of the trust under the broad supervision and
direction of the trustees. The AMC must have a net worth of at least Rs10 crores at all times and it can not act as a trustee of
any other mutual 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.
Applicable NAV
NAV at which a transaction is effected. A cutoff 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 cutoff time on a day. A different NAV holds if
received thereafter.
Application FormForm prescribed for investors to make applications for subscribing to the units of a fund.
Asset Allocations
Allocation of the portfolio of a mutual fund in various categories of assets such as equity, debt and others on the basis of the
investment objective of the scheme. The process of diversifying investments among different types of assets like stocks,
bonds and cash in order to optimise risk / return tradeoff based on a person's financial situation and goals.
Average Maturity
Average time to maturity of all fixedperiod investments in the portfolio of a scheme.
Appreciation
An increase in an investment's value.
Automatic Investment Plan
Periodic investment of a fixed amount by a unitholder , either directly from his bank account or by issuing postdated
cheques, in his mutual fund account.
Automatic Withdrawal Plan
Allows an investor to receive periodic payments of fixed amount or units from his investment in a mutual fund scheme.
Retirees who want a regular income supplement often choose this.
Average Portfolio Maturity
The average maturity of all the bonds in a bond fund's portfolio.
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Balanced funds
A mutual fund scheme with an investment objective of both longterm growth and income, through investment in stocks and
bonds. Generally 60% is invested in stocks and 40% in bonds , in order to obtain the highest returns consistent with a low risk
strategy.
Bear market
A period of time during which securities prices are falling in the stock market.
Benchmark
A standard used for comparison. Usually to provide a point of reference for evaluating a fund's performance. The common
benchmarks for equiyoriented funds are the BSE 200 index or the BSE Sensex.
Beta
A measure of a fund's volatility in relation to the stock market, as measured by a stated index. By definition, the beta of the
stated index is 1; a fund with a higher beta has been more volatile than the market, and a fund with a lower beta has been
less volatile than the market. Based on past historical records, a beta higher than 1.0 indicates that when the market rises, the
stock will rise to a greater extent than that of the market; likewise, when the market falls, the stock will fall to a greater extent. A
beta lower than 1.0 indicates that the stock will usually change to a lesser extent than that of the market. The higher the beta,
the greater the investment risk.
Blue chip
Stock of a nationally known company that has a long record of profit, growth, and dividend payment, and a reputation for
quality management, products, and services.
Bonds
A debt security or IOU issued by a government entity or corporation, which generally pays a stated rate of interest, and plans
to return the principal amount of the loan on the maturity date. Unlike stockholders, bondholders do not have corporate
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securities representing a contractual debt obligation of the issuer to repay the holder, with interest.
Shareholder (or stockholder)
The owner of shares of stock.
Shares
Units of ownership in a corporation. In a mutual fund, the value of each unit is calculated by dividing net assets by the number
of shares.
S & P 500 stocks (Standard & Poor's Composite Index of 500 stocks)
Market valueweighted index that measures stock market price movements, based on the aggregate performance of 500
widely held common stocks.
Stocks
A share of stock represents ownership, or equity, in a corporation. When a company needs money to grow and expand, it
may sell part of its ownership to the public in the form of shares (stock). In exchange for the money received from the sale, the
company gives shareholders a portion of its future profits, as well as a measure of its decisionmaking power. These
securities generally have the most potential for capital appreciation, but their rights are subordinated in the event of a
company liquidation or bankruptcy.
Switching
Transferring your investment from one scheme to another. An investor may want to switch due to changing market conditions.
Systematic Investment Plan (SIP)
Allows an investor to periodically invest in units by issuing postdated cheques. It allows the investor to benefit from rupee
cost averaging.
Systematic Withdrawal Plan (SWP)
Permits the investor to receive regular payments of a fixed amount or capital appreciation from his investment in a mutual
fund scheme on a periodic basis. Retirees in need of a regular income often opt for this.
Sale price
The price at which a fund offers to sell one unit of its scheme to investors. This NAV is grossed up with the entry load
applicable, if any.
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
Scheme Objective
The purpose statement consisting of the goal and the avenues of investment released by the fund.
Sector Fund or Specialty Fund
It concentrates its holdings in a specific industry such as health care, energy, insurance, leisure.
Systematic Withdrawal Plan (SWP)/Recurring withdrawal facility (RWF)
A plan offered with some schemes under which postdated cheques for fixed amounts (as may be fixed by the fund) are
issued to the investors for monthly, bimonthly or quarterly withdrawals. The withdrawals are as per the requirements of the
investor specified by him/ her at the time of investment.
Systematic Investment Plan (SIP)/ Recurring investment facility (RIF)
A program that allows an investor to provide postdated 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 Transfer Program (STP)
A plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount from
one scheme to another.
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Tax Deducted at Source (TDS)
No tax is withheld or deducted at source, where any income is credited or paid by a mutual fund, as per the provisions of
Section 194K and 196A of the Act.
Topdown investing
The topdown style of investment management places primary importance on country or regional allocation. Topdown
managers generally focus on global economic and political trends in selecting the countries or regions where they expect to
find investment opportunities. Only then do they employ a more fundamental analysis of individual stocks in order to make
their final selections.
Total return
Return on an investment over a specified period of time, which includes shareprice appreciation, reinvested dividends or
interest, and any capital gains.
Transaction costs
The costs incurred by the buying and selling of securities including broker commissions and the difference between dealer
buying and selling price.
Treasury bills (Tbills)
A shortterm security with a maturity of one year or less.
Treasury bonds (Tbonds)
A longterm debt instrument with a maturity of 10 years or longer.
Treasury notes (Tnotes)
A certificate representing an intermediateterm loan to the government with a maturity between two to ten years.
Total Assets Under Management
The market value of the total investments of a fund as on a particular date
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Total Returns
Returns from an investment calculated taking into account income distribution and capital appreciation.
Transfer Agent
A firm employed by a mutual fund to maintain unitholder records, including purchases, sales, and account balances.
Treasury Bill (Tbill)
A debt security issued by the Indian government, having a maturity of less than a year.
Turnover Rate
Based on the corpus, it is the number of times at which the fund buys and sells securities each year.
Trustee
A person or a group of persons having an overall supervisory authority over the fund managers. They ensure that the
managers keep to the trust deed, that the unit prices are calculated correctly and the assets of the funds are held safely.
Time Horizon
The period of time one can stay invested (eg. number of years to retirement). Longer time horizons can reduce volatility risk.
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Unit
The interest of the investors in either of the Schemes, which consists of each Unit representing one undivided share in the
assets of the Schemes.
Unit Holder
A person who holds Unit(s) under a Mutual Fund.
Unrealized Gain Or Loss
Increase or decrease in the prices of securities held by the fund.
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Value investing
The investment approach which favours buying underpriced stocks that have the potential to perform well and increase in
price in the future.It first seeks individual companies with attractive investment potential, then considers the economic and
industry trends affecting those companies. Value managers usually begin their search with fundamental analysis, in order to
find companies whose current prices may fail to reflect their potential longerterm value.
Volatility
The tendency of an investment or market to rise or fall sharply in price within a shortterm period. Volatility is measured by
beta.
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Year to Date (YTD)
A time period in a calendar year starting from the first of January and ending on the first of January.
Yield to Maturity (YTM)
The yield earned by a bond if it is held until its maturity date.
Yield
The annual rate of return on an investment usually expressed as a percentage.
Yield Curve
A graph depicting yield visavis maturity. If shortterm rates are lower than longterm rates, it is a positive yield curve, if short
term rates are higher, it is a negative or inverted yield curve. If there is isn't much difference, it is a flat yield curve.
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Zero coupon bond
A bond that is sold at a fraction of its face value. It does not, however, provide periodic interest payments but pays principal
upon maturity.
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