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Glossary
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A
Actively Managed Funds - A mutual fund in which individual stocks, bonds and/or cash investments are bought and sold based on research or other criteria used by fund managers. Actively managed funds generally try to outperform the market.

Aggressive Growth Funds - A mutual fund that seek high growth through aggressive investment strategies. These funds generally buy stocks of emerging companies that offer the potential for rapid growth.

Annualized Yield - The annual rate of return on an investment.

Annual Report - A financial statement issued each year by a corporation. It lists assets, liabilities and earnings, as well as some historical information.

Arbitrage Fund - Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. The returns are dependent on the volatility of the asset. These funds are hybrid in nature as they have the provision of investing a sizable portion of the portfolio in debt markets. Arbitrage funds are the panacea for low risk taking investors. In a situation of high and persistent volatility, arbitrage funds provide investors a safe avenue to park their hard earned money. These funds capitalize on the market inefficiencies and generate profits for the investors. As these funds invest predominantly in equities, their tax treatment is at par with equity funds.

Asset - A property that has monetary value, including personal possessions (e.g., houses, cars, jewelry) and financial assets (e.g., savings and investments).

Asset Allocation - The process of deciding how to divide investments among the three types of asset classes: stocks, bonds and cash equivalents. This decision is based on tolerance for risk and preferred time horizon, also known as Asset Mix.

Asset Allocation Fund - A mutual fund that provides investors with a portfolio of a fixed or variable mix of the three main asset classes - stocks, bonds and cash equivalents - in a variety of securities.

Asset Class - One of the three major types of investments: stocks, bonds and cash equivalents.
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B
Back-End Load - A sales charge on a mutual fund that is applied when shares of the fund are sold (see also front-end load).

Balanced Fund - These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.

Bear Market - A declining market in which prices fall for a sustained period of time.

Benchmark - A standard used for comparison. For example, the performance of some index mutual funds is compared to the performance of the S&P Nifty Index which serves as a benchmark.

Beneficiary - The person or organization designated to receive the funds or other property from a trust, insurance policy or retirement account.

Beta - A statistical measure of a security's or portfolio's volatility (price fluctuations) relative to the market as a whole. (The beta of the overall market is defined as 1, and is represented by the S & P Nifty Index over the last 36 months). A security with a beta of 1 indicates its price moves exactly with the overall market. A beta greater than 1 is more volatile than the overall market, while a beta less than 1 indicates that the security's price is more stable than the market (in general and over a long time period).

Blue-Chip Stock - The stock of a large, well-established company. Blue-chip stocks typically offer lower-than-average risk because of their solid track records.

Bond - A type of investment that is similar to a state or central government. Money is loaned, with interest, for repayment in full on a specific date.

Bond Maturity - The lifetime of a bond, concluding when the final payment of that obligation is due.

Bond Mutual Fund - A mutual fund that includes only bonds—typically corporate, PSU, state level bonds and government securities etc.

Broker - A person who acts as an intermediary between a buyer and seller of securities, usually charging a commission.

Bull market - A rising market in which prices go up for a sustained period of time.
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C
Capital Gain - The profit one receives when one sells an investment for more than one paid for it. Generally, Capital gains are taxable income.

Capital Gain Distribution - A payment an investor receives when a mutual fund makes a profit by selling some of the securities in his or her portfolio. Capital gains distributions are usually made annually.

Capitalization - The total stock market value of all shares of a company’s stock (the stock price multiplied by the number of shares outstanding).

Cash Investment - An investment that can easily be converted into cash, such as a money market fund or Treasury bill.

Certificate of Deposit (CD) - An investment made with a financial institution in which a specified amount is deposited for a specific period of time, at a preset, fixed interest rate.

Common Stock - Securities that represent an ownership interest in a company (as opposed to preferred stock, in which stockholders usually receive preferential treatment).

Compounding - The growth that results from investment income being reinvested. Compound growth has a snowball effect because both the original investment and the income from that investment are invested. Also known as compound growth.

Cost Basis - What was initially paid for an investment, as opposed to its current market value.

Current Yield - The annual interest on a bond divided by the current market price.
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D
Diversification - Lowering risk potential by spreading money across and within different asset classes such as stocks, bonds and cash equivalents.

Dividend - The part of a company’s net profits that is distributed to shareholders. A shareholder can specify that his or her dividends be reinvested to buy more shares, or that they be paid in cash.

Domestic Stock Mutual Fund - A mutual fund that invests primarily in stocks issued by Indian companies. These funds are classified according to size (large-cap, mid-cap and small-cap) and style (growth and value).

Debt/ Income Funds - These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.
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E
Earned Income - Salaries, wages, tips, professional fees and other amounts received as pay for work performed.

Earnings - A Company’s net income or profit.

Earnings per Share (EPS) - A Company’s total earnings for a period (its net income minus preferred dividends) divided by the number of common shares outstanding.

ELSS Funds - This type of mutual fund has a lock in period of 3 years from the date of investment. This means if you start a Systematic Investment Plan in an ELSS, then each of your investments will be locked in for 3 years from the respective investment date.

Equity - Another name for stock, representing ownership of a corporation.

Exchange Traded Fund - Exchange-traded funds (ETFs) are securities that closely resemble index funds, but can be bought and sold during the day just like common stocks. These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock along with the diversification of a mutual fund.

Expense Ratio - For mutual funds, the percentage of a fund’s average net assets that are used to pay fund expenses. This percentage accounts for management fees, and administrative fees.
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F
Fixed Income Investment - An investment that produces a steady stream of income in the form of interest payments. The borrower, or issuer, can be a government—state or central; a company; or a bank.

FMP (Fixed Maturity Plan) - A closed-end fund that invests in debt and money market instruments of the same maturity as the stated maturity of the plan. The focus of a fixed maturity plan is to provide a stream of income through interest payments, while exposing the investor to a lower level of risk.

Foreign Fund - A mutual fund that invests in markets outside India. See international stock funds.

Front-End Load - A sales charge on a mutual fund that is applied when shares of the fund are purchased (as opposed to a back-end load, applied when shares are sold).
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G
Gift Tax - A tax imposed on transfers of property as gifts during the donor’s lifetime.

Gilt Fund - These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk. Gilt funds differ from bond funds because bond funds invest in corporate bonds, government securities, and money market instruments. Gilt funds stick to high quality-low risk debt government securities.

Gilt Medium and Long Term Fund - A mutual fund that invests in several different types of medium and long-term government securities

Gilt Short and Medium Term Fund - A mutual fund that invests in several different types of medium and short-term government securities

Gilt Short Term Fund - A mutual fund that invests in several different types of short-term government securities

Gold Funds - A gold fund is an exchange-traded fund (ETF) or mutual fund that invests in gold.

Government Securities - A security issued by the RBI.

Gross Income - All income from all sources (other than tax-exempt income) that must be included on one’s tax return, also known as gross earnings.

Growth and Income fund - A mutual fund that seeks both capital appreciation (growth) and current income. Investments are selected based on both their appreciation potential and their ability to pay dividends.

Growth Fund - A stock fund that seeks long-term capital appreciation. Growth funds generally buy common stocks of companies that ad visors believe have long-term growth potential.

Growth Stock - The stock of a company that has previously seen rapid growth in revenue or earnings and is expected to see similar growth beyond the short term. Generally speaking, growth stocks pay relatively low dividends and sell at a relatively high price, considering their earnings and book value.
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H
Hedge Fund - These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.

Hybrid Fund - A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed.
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I
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 - A composite of companies that measures changes in market behavior. Well-known market indices include the S&P Nifty Index, the Sensex.

Index Fund - A mutual fund that seeks to track the performance of a market index, such as the S&P Nifty Index, by investing in the stocks or other securities that compose that index.

International Funds - A mutual fund that can invest in companies located anywhere outside of its investors' country of residence.

Inflation - An increase in the cost of living measured as a percentage and classified according to its severity. Mild inflation occurs when the price level—an average of all prices—rises from 2% to 4%. Moderate inflation refers to an inflation rate of 5% to 9%. Severe inflation (or “double-digit inflation”) refers to an inflation that threatens a country’s economy, in which money loses its value and people turn to bartering rather than relying on currency.
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L
Liability - An obligation to make a payment or settle a debt (e.g., a mortgage or car loan payment).

Large-Cap Stock - The stock of a company whose median market capitalization is in the top 5% of the largest domestic companies. A large-cap mutual fund is a mutual fund that invests only in large-cap stocks.

Large-Cap Funds – Funds which invest a larger proportion of their corpus in companies with large market capitalization are called large cap funds.

Large and Mid Cap Funds – Mutual funds which diversify investments in between large and mid capitalization companies are classified as large and midcap funds. The ratio in which the investment is diversified, between large and mid cap companies, might differ from fund to funds.

Liquid Investment - An investment that can be easily converted to cash.

Liquid Funds / Money Market Funds - These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.

Load - A commission or sales fee on a mutual fund. A mutual fund without a load is a no-load fund.

Long Term Debt Funds – Fund investing in long term debt which for a company would include any financing or leasing obligations that are to come due in a greater than 12-month period.
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M
Market Capitalization - The total value of a company’s stock, calculated by multiplying the number of outstanding shares by the price per share.

Maturity Date - For a fixed income investment, the specified date at which the issuer promises to repay the money it has borrowed.

Medium Term Debt Funds – Funds investing in medium term debt instruments. While there is no set definition of what constitutes the medium-term, it is generally accepted that intermediate bonds are those that mature somewhere between one and 15 years.

Mid-Cap Stock - The stock of a company whose market capitalization falls between large-cap (top 5%) and small-cap (bottom 80%).

Mid-Cap Funds – A type of stock fund that invests in mid-sized companies. A company's size is determined by its market capitalization, with mid-sized firms generally ranging from $2 billion to $10 billion in market cap.

Mid and Small Cap Funds – Mutual funds which diversify investments in between mid and small cap companies are termed as mid and small cap funds. The proportion of investments between midcap and small cap may vary from fund to fund.

MIP (Monthly Income Plan) - A type of investment vehicle that provides a specified monthly payment to the investor. This monthly payment is intended to be a stable form of income and is therefore typically suited for retired persons or senior citizens without other substantial sources of monthly income

Money Market Fund - A mutual fund that invests solely in securities that can easily be turned into cash, such as Treasury bills, certificates of deposit (CDs) and short-term loans.

Multi Cap Funds - These are diversified mutual funds which can invest in stocks across market capitalization. In other words, they are market capitalization agnostic. These funds change portfolio proportions commensurate with the market condition.

Mutual Fund - A type of investment that pools the money of many investors to buy various securities, including stocks, bonds and/or cash equivalents.
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N
Net Asset Value per Share (NAV) - The market value of a single unit of a mutual fund. It is calculated at the end of each business day by adding up the value of all the securities in the fund’s portfolio, subtracting expenses and dividing the sum by the number of units outstanding. Mutual funds are traded based on their NAVs.

Net Income - Gross income minus adjustments to income. Adjustments can be taken even if itemized deductions are not claimed. Also known as net earnings and adjusted gross income.

Net Profit - The remaining profit on an investment once all expenses have been deducted.

Net worth – It is the value of total assets minus total liabilities.
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O
Offshore Funds / International Funds - These funds facilitate cross border fund flow. They invest in securities of foreign companies. They attract foreign capital for investment.

Operating Expense Ratio (OER) - A mutual fund’s annual expenses (operating expenses, management fees) expressed as a percentage of the fund’s average net assets. These expenses are deducted before calculating the fund’s NAV.

Operating Expenses - Costs incurred by a mutual fund in its day-to-day operations. Every fund is subject to some amount of operating expenses, which usually include management fees, annual fees, administrative costs and maintenance fees.
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P
P/E ratio (Price/Earnings Ratio) - A measurement that represents the relationship between the price of a company’s stock and its earnings for the past year. To get a company’s P/E ratio, divide its current price by its earnings per share (EPS) for the past year.

Portfolio - The combined holding of stocks, bonds and cash investments held by an individual investor, a mutual fund or a financial institution.

Preferred Stock - A class of stock that has a claim on the company’s earnings before payment is made on the common stock if the company declares a dividend.

Prospectus - A legal document that describes a mutual fund and offers its shares for sale. It contains information required by the regulators, including the fund’s investment objectives and policies, investment restrictions, fees and expenses, and how units can be bought and sold. Every mutual fund is required to publish a prospectus and provide it to investors free of charge.
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R
Reinvesting - Using dividends or interest income from an investment to buy more shares of that investment.

Rupee-Cost Averaging - Investing the same rupee amount in the same securities, at regularly scheduled intervals over the long term, with the aim of stabilizing returns.
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S
Securities - Stocks that signify ownership interest in a company, or bonds that indicate a credit relationship with a borrower. Some other types of securities are options, warrants and mutual funds.

Sectorial Fund - These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.

Share - A unit of ownership in company stock or in a mutual fund investment.

Short Term Funds - A type of fund that invests in short-term investments.

Short Term Debt Funds - A fund that invests in short-term debt investments of high quality and low risk. The goal of this type of fund is to protect capital with low-risk investments while achieving a return that beats a relevant benchmark such as a Treasury bill index.

Small-Cap Stock - The stock of a company with a relatively small total market value, meaning a median market capitalization in the lower 80% of the largest domestic companies.

Small-Cap Funds - A mutual fund that invests in companies with a market capitalization typically of more than $300 and less than $2 billion.

Stock - An investment that represents a share of equity ownership in a company. Also known as equity.
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T
Term Life Insurance - A type of life insurance that is in effect for a specified period, usually a five-, 10-, 15- or 30-year term.

Treasuries, Treasury bill (T-bill), Treasury note or Treasury bond - Securities issued by the RBI. T-bills are short-term obligations that mature in one year or less; Treasury notes mature in between one and 10 years; Treasury bonds are long-term obligations.
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U
Ultra Short Term Fund - Ultra short-term funds invest in fixed-income instruments which are mostly liquid and have short-term maturities. Ultra short-term funds help investors avoid interest rate risks, yet they are riskier and offer better returns than most money market instruments. Liquid and ultra short-term funds are similar on various lines, yet there are differences between a liquid fund and an ultra short-term fund.

Unearned Income - Income other than earned income. This is investment-type income and includes interest, dividends and capital gains. Distributions of interest, dividends, capital gains and other unearned income from a trust are also unearned income to a beneficiary of the trust.
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V
Value Fund - A mutual fund that invests in companies whose assets are considered undervalued, or in companies that have turnaround opportunities, such as those with lower P/E ratios.

Volatility - The magnitude and frequency of change in securities’ values. The more volatile and investment, the higher its risk and return potential.
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W
Will - A legally binding document directing the disposition of one’s property. A will is not operative until death and can be revoked up to the time of death, or until there is a loss of mental capacity to make decisions regarding a will.
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Z
Zero-Coupon Bonds - Bonds that do not pay interest until maturity. They are sold at a discount from their face value, and their value increases as they near maturity. An investor’s return comes from the appreciation.
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