Reference

Mutual Fund Glossary

Every term you need to understand Indian mutual funds, SIPs, and investment calculations — explained in plain language.

A

AUM (Assets Under Management): The total market value of all the assets managed by a mutual fund scheme. A higher AUM generally indicates investor confidence but does not guarantee performance. AUM is calculated daily based on the current market value of all securities held by the fund.
Annualised Return: The return expressed on a yearly basis. For investments shorter or longer than one year, annualised return allows comparison across different time periods. XIRR and CAGR are common methods to calculate annualised returns for mutual funds.
Asset Allocation: The strategy of dividing investments across different asset classes — equity, debt, gold, and cash — based on goals, risk tolerance, and time horizon. A typical allocation might be 70% equity and 30% debt for a moderate-risk investor.
ATL (Active Track List): A curated list of mutual fund schemes that an advisor or platform considers worthy of investment. Funds are added or removed from the ATL based on ongoing performance reviews and changing market conditions.
Alpha: A measure of a fund's risk-adjusted performance relative to its benchmark. A positive alpha of 2% means the fund outperformed its benchmark by 2% after adjusting for risk. Alpha is calculated using the Capital Asset Pricing Model (CAPM) and is one of the most commonly used measures of fund manager skill.
AMC (Asset Management Company): The company that manages a mutual fund scheme. AMCs pool money from investors and invest it in securities according to the fund's stated objectives. Examples include HDFC AMC, SBI Funds Management, Nippon India AMC, and Axis AMC.
AMFI (Association of Mutual Funds in India): The industry body of all registered Asset Management Companies in India. AMFI sets industry standards, publishes mutual fund data and NAVs, and runs investor education programs. AMFI registration numbers should be verified before investing through any distributor.
Arbitrage Fund: A type of mutual fund that exploits price differences in cash and derivatives markets to generate returns. Arbitrage funds are considered low-risk and tax-efficient for investors in higher tax brackets, as they are taxed like equity funds (LTCG at 12.5% above ₹1.25L).

B

Benchmark: An index used as a reference point to evaluate a mutual fund's performance. For example, a large cap fund might be benchmarked against the Nifty 50 TRI. If the fund returns 14% while the benchmark returns 12%, the fund has outperformed by 2%.
Beta: A measure of a fund's volatility relative to its benchmark. A beta of 1.1 means the fund is 10% more volatile than the benchmark. Beta greater than 1 indicates higher volatility; less than 1 indicates lower volatility.
Banking & PSU Fund: A debt mutual fund that invests at least 75% of its assets in debt instruments of banks, Public Sector Undertakings (PSUs), and Public Financial Institutions. These funds offer relatively low credit risk with moderate returns.

C

CAGR (Compound Annual Growth Rate): The mean annual growth rate of an investment over a specified time period longer than one year. It smooths out the effect of volatility and shows what the investment would have grown to if it had grown at a steady rate each year. Formula: CAGR = (Ending Value / Beginning Value)^(1/Years) - 1.
CAGR vs XIRR: CAGR (Compound Annual Growth Rate) assumes all money was invested for the entire period and is suitable for lumpsum investments. XIRR (Extended Internal Rate of Return) accounts for multiple cash flows at different times, making it the correct metric for SIP returns. For a SIP, XIRR will differ from CAGR because each installment compounds for a different duration.
Contra Fund: A mutual fund that follows a contrarian investment strategy — investing in out-of-favour sectors and stocks that are undervalued due to temporary negative sentiment. Contra funds require patience as contrarian bets can take time to play out. SBI Contra Fund is the most well-known example in India.
Corporate Bond Fund: A debt mutual fund that invests at least 75% of its assets in corporate bonds with high credit ratings (AA+ and above). These funds offer higher returns than government securities while maintaining relatively low credit risk.
Credit Risk Fund: A debt mutual fund that invests at least 65% of its assets in lower-rated corporate bonds (below AA+). Credit risk funds offer higher potential returns but carry significant credit default risk, as seen in the 2019-2020 IL&FS and DHFL crises.

D

Direct Plan: A mutual fund plan where you invest directly with the AMC (Asset Management Company) without involving a distributor. Direct plans have a lower expense ratio because no distributor commission is paid, resulting in higher returns over time.
Dividend: A portion of the fund's profits distributed to unitholders. In the growth option, dividends are reinvested in the fund. In the IDCW (Income Distribution cum Capital Withdrawal) option, dividends are paid out to investors periodically.
DRIP (Dividend Reinvestment Plan): An option where dividends paid by a mutual fund are automatically used to purchase additional units of the same fund. In the Indian context, this is the default for the growth option. DRIP enables compounding of returns over the long term.

E

ELSS (Equity Linked Savings Scheme): A type of equity mutual fund that qualifies for tax deduction under Section 80C of the Indian Income Tax Act. ELSS has the shortest lock-in period (3 years) among all 80C investment options. Returns are subject to LTCG tax.
Expense Ratio: The annual fee charged by the AMC for managing the fund, expressed as a percentage of AUM. It includes management fees, administrative costs, and operating expenses. A lower expense ratio means more of the returns go to you. Direct plans always have a lower expense ratio than regular plans.
Exit Load: A fee charged when you redeem (sell) mutual fund units within a specified period. For example, a 1% exit load if redeemed within 1 year means you lose 1% of your redemption value. Most equity funds have zero exit load after 1 year.

F

Face Value: The original value of a mutual fund unit when it was first issued, typically ₹10 or ₹100. Unlike stock face value, mutual fund face value has limited significance since NAV is what determines the current value of your investment.
Fund of Funds (FoF): A mutual fund that invests in other mutual funds rather than directly in stocks or bonds. FoFs provide diversification across fund houses and asset classes but may have a slightly higher expense ratio due to the double layer of fees.
Focused Fund: An equity mutual fund that is required to invest in a concentrated portfolio of up to 30 stocks. Focused funds offer high conviction in stock selection but carry concentration risk. SEBI mandates that focused funds must hold at least 20 stocks.
Fund Manager: The professional responsible for implementing a mutual fund's investment strategy and making portfolio decisions. The fund manager's experience, track record, and investment philosophy are important factors to evaluate when selecting a fund. Fund managers are supported by research teams.

G

Gilt Fund: A debt mutual fund that invests predominantly in government securities (gilts). These are considered among the safest debt funds since they carry virtually no credit risk (the government is unlikely to default). However, they are sensitive to interest rate changes.
Growth Option: A mutual fund option where profits are reinvested into the fund rather than paid out as dividends. The NAV reflects the compounded growth. Recommended for long-term wealth creation as it maximises the power of compounding.

I

IDCW (Income Distribution cum Capital Withdrawal): Previously called the dividend option. Under IDCW, the fund distributes a portion of its profits to unitholders. The NAV drops by the distribution amount on the ex-date. IDCW is taxable in the hands of the investor.
Index Fund: A type of mutual fund or ETF with a portfolio constructed to match or track the components of a market index. Index funds passively replicate the holdings of an index like the Nifty 50 or Sensex, providing broad market exposure at a very low cost.
Indexation: A method of adjusting the purchase price of an asset for inflation when calculating capital gains tax. For debt funds purchased BEFORE April 1, 2023, indexation could significantly reduce tax liability. The 2023 Budget removed indexation benefit for debt funds bought on or after April 1, 2023.
Information Ratio: A measure of a fund manager's ability to generate excess returns relative to the benchmark, per unit of tracking error. A higher information ratio indicates more consistent outperformance. An information ratio above 0.5 is considered good.
IRDAI (Insurance Regulatory and Development Authority of India): The regulatory body for the insurance sector in India. Relevant for mutual fund investors when comparing investment-cum-insurance products like ULIPs versus pure mutual fund investments, as ULIPs are regulated by IRDAI while mutual funds are regulated by SEBI.

L

Large Cap Fund: An equity mutual fund that invests predominantly in the top 100 companies by market capitalisation. Large cap funds are generally less volatile than mid cap or small cap funds and are suitable for conservative equity investors.
LTCG (Long Term Capital Gains): Gains from the sale of equity mutual fund units held for more than 12 months. LTCG above ₹1.25 lakh per financial year is taxed at 12.5% (as of July 2024 Budget). Below ₹1.25 lakh, LTCG is tax-free. For debt funds purchased AFTER April 1, 2023, there is no LTCG benefit - all gains are taxed at slab rate regardless of holding period.
Liquid Fund: A debt mutual fund that invests in money market instruments with maturity up to 91 days. Liquid funds are the safest category of debt funds, with very low interest rate risk. They are suitable for parking emergency funds or short-term surplus for up to 3 months.
Lock-In Period: The minimum period during which mutual fund units cannot be redeemed. For ELSS funds, the lock-in is 3 years. Closed-ended funds have a lock-in equal to their tenure. During the lock-in, the NAV continues to fluctuate but you cannot exit.

M

Mid Cap Fund: An equity mutual fund that invests in companies ranked 101-250 by market capitalisation. Mid cap funds offer higher growth potential than large cap funds but come with higher volatility. Suitable for investors with a 7+ year horizon.
Maximum Drawdown: The peak-to-trough decline in a fund's NAV, expressed as a percentage. It measures the worst loss an investor would have experienced if they invested at the peak and redeemed at the trough. A fund with -40% maximum drawdown means it once lost 40% from its highest value.
Multi-Cap Fund: An equity mutual fund that invests across large, mid, and small cap stocks. As per SEBI rules, multi-cap funds must invest at least 25% in large caps, 25% in mid caps, and 25% in small caps. This provides built-in diversification across market capitalisations.

N

NAV (Net Asset Value): The per-unit market value of a mutual fund scheme. Calculated as: NAV = (Total Assets - Total Liabilities) / Total Outstanding Units. NAV is calculated at the end of each business day. You buy and sell mutual fund units at the prevailing NAV.
NFO (New Fund Offer): The initial subscription offer for a new mutual fund scheme. Similar to an IPO for stocks. NFOs typically have a minimum subscription period of 15 days. There is no advantage to investing in an NFO versus waiting for the fund to establish a track record.

O

Overlapping: When two or more mutual funds in your portfolio hold the same stocks. Some overlap is normal, but excessive overlap (more than 30-40%) means you are not truly diversified. Use portfolio overlap tools to check and optimize your holdings.
Overnight Fund: A debt mutual fund that invests in securities maturing in 1 day. Overnight funds have the lowest risk among all mutual fund categories — they have no interest rate risk and no credit risk. Returns are typically slightly above savings account rates.

P

Portfolio Rebalancing: The process of realigning your investment portfolio to its original asset allocation. For example, if equity has grown to 80% from a target of 70%, you would sell 10% of equity and invest in debt to restore the balance. Typically done annually or when allocations drift significantly.
Portfolio Turnover: A measure of how frequently a fund buys and sells securities within a year. Turnover ratio of 100% means the fund replaced its entire portfolio in one year. High turnover increases transaction costs and can create tax liabilities. Low turnover is generally preferred for long-term investors.

R

Regular Plan: A mutual fund plan where you invest through a distributor (broker, bank, or financial advisor). Regular plans have a higher expense ratio than direct plans because they include the distributor's commission. The commission is embedded in the NAV, so you don't pay it separately.
Risk-Adjusted Return: A measure of return that accounts for the level of risk taken to achieve it. Metrics like Sharpe ratio, Sortino ratio, and Treynor ratio are commonly used. A fund with 15% return and lower volatility may be preferable to a fund with 17% return and much higher volatility.
R&T Agent (Registrar and Transfer Agent): An entity that maintains investor records, processes transactions (purchases, redemptions, switches), and handles investor servicing for mutual funds. Major R&T agents in India include CAMS and Karvy. They issue account statements and transaction confirmations.
RBI (Reserve Bank of India): India's central bank that regulates monetary policy, inflation, and interest rates. RBI policies directly impact debt fund returns (through interest rate changes) and indirectly affect equity markets through liquidity and economic growth measures.

S

Sensex: The benchmark stock market index of the Bombay Stock Exchange (BSE). It tracks the performance of 30 large, well-established companies listed on the BSE. It is one of the oldest equity indices in India, established in 1986.
Sharpe Ratio: A measure of risk-adjusted return calculated as (Fund Return - Risk-Free Rate) / Fund Standard Deviation. A higher Sharpe ratio indicates better risk-adjusted returns. A Sharpe ratio above 1 is generally considered good; above 2 is excellent.
Small Cap Fund: An equity mutual fund that invests in companies ranked 251 and below by market capitalisation. Small cap funds have the highest growth potential but also the highest volatility among equity fund categories. Suitable for aggressive investors with a 10+ year horizon.
SIP (Systematic Investment Plan): A method of investing a fixed amount regularly (typically monthly) in a mutual fund. SIP leverages rupee cost averaging — you buy more units when prices are low and fewer when prices are high. Minimum SIP amounts can be as low as ₹100.
STCG (Short Term Capital Gains): Gains from the sale of equity mutual fund units held for 12 months or less. STCG is taxed at 20% (as of July 2024 Budget). For debt funds purchased AFTER April 1, 2023, all gains are taxed at slab rate regardless of holding period, so the STCG/LTCG distinction does not apply.
Standard Deviation: A statistical measure of how much a fund's returns vary from its average return. Higher standard deviation means higher volatility. For example, a fund with standard deviation of 15% has more volatile returns than one with 10%.
Systematic Transfer Plan (STP): A facility to transfer a fixed amount from one mutual fund to another at regular intervals. For example, you can STP from a liquid fund to an equity fund monthly. STP is useful for phased investment from a lump sum.
Systematic Withdrawal Plan (SWP): A facility to withdraw a fixed amount from a mutual fund at regular intervals. Useful for generating regular income during retirement. You specify the withdrawal amount and frequency, and units are redeemed accordingly.
SEBI (Securities and Exchange Board of India): The regulatory authority for India's securities market, including mutual funds. SEBI sets the rules for fund categorization, expense ratio caps, disclosures, and investor protection. All mutual funds must comply with SEBI (Mutual Funds) Regulations, 1996.
Sortino Ratio: A variation of the Sharpe ratio that only considers downside volatility (negative returns) rather than total volatility. A higher Sortino ratio indicates better risk-adjusted returns with a focus on downside protection. Useful for evaluating funds that may have high upside but low downside volatility.

T

TER (Total Expense Ratio): The total annual operating expense of a mutual fund expressed as a percentage of AUM. TER includes management fees, administration costs, audit fees, marketing expenses, and all other operating costs. SEBI caps TER based on fund type and AUM.
Thematic Fund: An equity mutual fund that invests in stocks related to a specific theme or economic trend, such as infrastructure, consumption, or manufacturing. Thematic funds have concentrated sector exposure and higher volatility than diversified funds.
Treynor Ratio: A measure of risk-adjusted return that uses systematic risk (beta) instead of total risk. Calculated as (Fund Return - Risk-Free Rate) / Beta. Useful for comparing funds that are part of a well-diversified portfolio.
Tri-Party Repo (TREPS): A short-term borrowing mechanism used by debt funds where government securities are used as collateral. TREPS provide liquidity and are a common investment avenue for liquid and overnight debt funds.
Turnover Ratio: The percentage of a fund's portfolio that is bought or sold over a period (usually a year). A high turnover ratio (above 100%) indicates frequent trading, which can increase transaction costs and tax implications. Lower turnover generally indicates a buy-and-hold approach.
TDS on Mutual Funds: Tax Deducted at Source applicable on mutual fund redemptions and dividends. For equity funds, no TDS is deducted on capital gains. For debt funds, TDS at 10% is deducted on capital gains for resident Indians if the gain exceeds ₹5,000 in a financial year. TDS at 20% applies for non-residents.
Tracking Error: The standard deviation of the difference between a fund's returns and its benchmark index returns. Lower tracking error indicates the fund closely follows its benchmark. For index funds, tracking error below 0.5% is considered good. High tracking error in an index fund is undesirable.

U

Ultra Short Duration Fund: A debt mutual fund that invests in instruments with Macaulay duration between 3 and 6 months. These funds offer slightly higher returns than liquid funds while maintaining low interest rate risk. Suitable for investment horizons of 3-6 months.

V

Value Fund: An equity mutual fund that follows a value investing strategy — seeking stocks trading below their intrinsic value. Value funds invest in companies with strong fundamentals that are temporarily out of favour. They tend to outperform during value-led market phases and underperform during growth rallies.

X

XIRR (Extended Internal Rate of Return): The most accurate method to calculate returns for SIP investments because it accounts for the timing of each cash flow. Unlike CAGR, XIRR considers that each monthly SIP installment compounds for a different duration. XIRR is the annualised return that makes the net present value of all cash flows equal to zero.

Y

Yield to Maturity (YTM): The total return anticipated on a debt instrument if held until maturity. For debt mutual funds, YTM indicates the expected return if all underlying bonds are held to maturity and all interest payments are reinvested at the same rate.

← Back to SIP Calculator