Simplifying Mutual Fund Investment Jargon

The complex terminology and jargon used by advisors and wealth managers can make people wary of investing in mutual funds. Knowing a few of these jargons will make investment-related conversations much clearer. 

Reaching out to friends, family and wealth coaches is one way of simplifying things. The other way is to have a go-to page, like this one, that has short and easy-to-understand definitions for everyday mutual fund terms. 

Here is a glossary of key mutual funds phrases and abbreviations to help amateur investors get started with investment jargon. Don’t forget to bookmark this blog for future reference! You can consult a Cube Wealth coach or download a Cube Wealth coach.

All You Need To Know About Mutual Fund Jargon

What Are Mutual funds?

A mutual fund is an investment instrument where many investors pool their money. A fund manager invests this pool of money in securities like stocks and bonds with the objective of generating a return.

What Are Debt Funds?

Debt funds are mutual funds that invest in fixed income securities like bonds, commercial papers and treasury bills. They are low-risk investments that have a specified maturity date and rate of return. Read more about Debt Funds here.

What Are Bonds?

Bonds are high-security debt instruments in which the investor lends money to an entity to help raise capital. Bonds earn interest at fixed as well as the variable rate of interest.

What Are Certificates Of Deposit (CDs)?

A Certificate of Deposit (CD) is similar to a savings account. The difference is that it locks your funds for a fixed tenure and offers interest at rates higher than a regular savings account.

What Is Commercial Paper (CP)?

A Commercial Paper (CP) is an unsecured money market instrument issued by large corporate companies to raise short-term funds.

What Are Treasury Bills?

Treasury bills or T-bills are short-term instruments issued by the RBI to fulfil fund requirements of the government. T-bills earn no interest. They can be purchased at a discount and later redeemed at nominal value. The difference is the profit of the investor.

What Are Equity Funds?

Equity funds are mutual funds that primarily invest in stocks or shares of different companies rather than bonds.

What Are Large-Cap Funds?

Large-cap funds are equity mutual funds that invest a majority of their capital in companies that have a huge market capitalization (above Rs. 26,677.06 Cr). Read more about Large-Cap Funds here.

What Are Bluechip Funds?

Bluechip funds are mutual funds that invest in large, credible and well-established companies. Also known as blue chip companies, they are less volatile and are known to deliver consistent returns.

What Are Mid-Cap Funds?

Mid-cap funds are equity mutual funds that invest in mid-sized companies, i.e. companies with capitalization between Rs. 500 Cr to Rs. 10,000 Cr. Read more about Mid-Cap Funds here.

What Are Small-Cap Funds?

Small-cap funds invest in companies that have a market capitalization of under Rs. 500 Cr or are ranked 20 or lower in market capitalization terms. Read more about Small-Cap Funds here.

What Are Multi-Cap Funds?

Multi-cap funds are equity funds that primarily invest in stocks of small-cap, mid-cap and large-cap companies.

Here is all you need to know about multi-cap funds.

What Are ELSS Funds?

Equity Linked Savings Scheme or ELSS funds are tax-saving equity funds with a mandatory lock-in period of three years. They offer a tax exemption up to Rs. 1,50,000 under Section 80C. Read about tax saving mistakes to avoid in 2021 here.

What Are Hybrid Funds?

Hybrid funds are mutual funds or exchange-traded funds that invest in a mix of securities that are usually a combination of equity and debt investments.

What Are Liquid Funds?

Liquid funds invest primarily in instruments like T-bills, fixed deposits and similar debt securities. They are short-term investments with a maturity period of 91 days. Liquid funds offer 7 to 8% returns, which are higher than a savings account or FD returns. Read more about the best liquid funds in 2021 here.

What Are International Funds?

International mutual funds invest your money in foreign countries like the UK, the USA, Japan, China, and so on. Read this blog to know more about global and international funds.

What Are Global Funds?

Global mutual funds invest your money in India as well as several foreign countries. Read this blog to know more about global and international funds

What Are Ultra Short-Term Funds?

Ultra short-term debt funds are a type of debt funds with a maturity period of 3 to 6 months. They invest in debt and money market securities like bonds. Read more about ultra short term funds here.

What Are Arbitrage Funds?

Arbitrage funds are mutual funds that generate returns by leveraging the difference in share prices across markets. They buy shares at a lower price and sell them for profit. Read more about arbitrage funds here. You can consult a Cube Wealth coach or download a Cube Wealth coach.

What Is An Arbitrage Opportunity?

An arbitrage opportunity arises from the difference in the prices of stocks across markets. Arbitrage means that investors buy commodities at a lower price and sell the same commodities in a different market for a higher price.

What Are Value Funds?

Value funds are unorthodox funds that invest in undervalued stocks that have the potential to generate profits in the long run. These funds assume that the value of stocks will rise as the market realizes its potential. Read more about value funds here.

What Are Balanced Funds?

Balanced funds spread their investments across asset classes, including stocks, bonds and other securities. They diversify and balance risk by investing in low-risk, medium-risk and high-risk assets. 

What Are Money Market Funds?

Money market funds are debt mutual funds that invest in short-term (12 months) instruments to maintain high liquidity.

What Are Sector Funds?

Sector funds are mutual funds that invest only in a selected sector. They are also known as sectoral funds and specialty funds. Read more about sector funds here.

What Is A Systematic Investment Plan?

A Systematic Investment Plan allows investors to make small, regular and equal investments in a mutual fund or a trading account. Read more about SIPs here.

What Is A Systematic Transfer Plan?

A Systematic Transfer Plan allows investors to transfer money from one mutual fund to another. For example, investors may first park money in a liquid fund and then periodically transfer that investment to equity funds. Every transfer incurs a tax deduction. Read more about STPs here.

What Is A Systematic Withdrawal Plan?

A Systematic Withdrawal Plan allows investors to invest a particular amount and schedule regular withdrawals. Investors can withdraw a fixed amount each month, while the remaining amount continues to accumulate interest.

What Are Close-Ended Schemes?

Close-Ended funds are equity or debt funds that have a fixed number of shares offered by an investment company through an IPO (Initial Public Offering). Once the NFO (New Fund Offer) period ends, investors cannot buy any units of the mutual fund.

What Is A Direct Plan?

In a direct plan, investors buy stocks directly from a mutual fund company. There is no broker or distributor in between.

What Is A Regular Plan?

In a regular plan, investors go through distributors or brokers to buy stocks. The broker’s commission is paid by the mutual fund company.

What Is A Growth Scheme?

A growth scheme or a growth fund invests in companies that show an above-average growth rate. The objective of such a niche portfolio is to generate high returns. Growth funds offer little or no dividends.

Important Mutual Fund Jargon In A Nutshell

What Are Returns?

Returns (on investment) refer to the money earned on investments over a period of time. Three types of returns on financial investments are interest, dividend, and capital gains.

What Is An Entry Load?

Entry load is the fee charged to investors when they invest in a mutual fund. It is added to the net asset value at the time of allotment.

What Is An Exit Load?

Exit load is the fee charged to the investor at the time of exiting a scheme or a company. It is charged from the net asset value at the time of redemption. 

What Is An Expense Ratio?

The (Management) Expense ratio is the percentage of a fund’s assets spent for administrative, operating, advertising and other expenses.

What Is AUM?

AUM is the abbreviation for Assets Under Management. It refers to the total market value of all assets and investments managed by a person or a financial institution on behalf of their clients.

What Is NAV?

NAV is the abbreviated form of Net Asset Value. NAV is calculated by deducting the total value of a company’s liabilities from the total value of its assets. It is commonly represented as the per-unit value of a fund.

What Is An Investment Strategy?

An investment strategy refers to the approach an investor takes to make investment decisions. This approach or strategy is based on investor’s goals, risk-appetite, expected returns and corpus amount. It could be further shaped by specific interests and fundamental beliefs.

What Is A Folio Number?

A folio number is a unique number assigned to a mutual fund investor.

What Is An Account Statement?

An account state is also referred to as CAS (Consolidated Account Statement). It is a statement of all mutual fund transactions made in a given period by an investor. It includes details of all mutual funds held by an investor. 

What Is An AMC?

AMC (Asset Management Company) invests in securities using funds pooled from different individual investors. They charge investors a fee for their services and in turn offer optimal returns.

What Are Annualised Returns?

Annualised return is a geometric average of the amount earned on an investment per annum. 

What Is Asset Allocation?

Asset allocation refers to dividing your investments to balance returns versus risks. It involves investing in different asset classes and categories depending on an investor’s investment strategy.

What Is A Benchmark?

A benchmark is a reference point against which the performance and stock allocation of a mutual fund scheme are compared.

What Are Capital Gains?

Capital gain is the profit that arises from the difference in the purchase price and selling price of a financial asset such as digital gold or shares.

What Is A Capital Gains Tax?

Capital gains tax is charged on the profit earned from the sale of assets like mutual funds, stock, and digital gold investments.

What Is Diversification?

Diversification is a technique of allocating investment resources in a way that distributes risk. Usually, it includes investing in different kinds of assets that balance risk and returns.

What Is A Dividend?

A share of profit, made by a public-listed company that is paid out to its shareholders is known as a dividend. Mutual funds may pay dividends too.

What Is Dividend Distribution Tax?

Dividend distribution tax is the tax paid by Indian companies to the government on the dividend paid out to the investors out of its profits. 

Who Is A Fund Manager?

A fund manager is an investment expert appointed by the mutual funds company to manage funds and investments for a set of clients and keep a clear accounting record for them.

What Is A Management Fee?

A management fee is paid to a professional who manages investments on behalf of his or her clients. It is usually calculated as a percentage of the net asset value or total assets under management. 

What Is Indexation?

Indexation is a technique of adjusting income returns by using a price index in order to adjust for effects of inflation and minimize the amount of money that investors would pay in the form of taxes.

What Is A Star Rating?

Mutual funds are given star ratings according to the returns offered and the level of risk involved in an investment. The ratings are assigned for 3, 5 and 10 year periods and then combined to derive an overall rating.

What Is Inflation?

Inflation refers to the overall price rise in an economy over a period of time. During inflation, the value of a currency falls while the prices of goods rise.

What Is An Investment Objective?

An investment objective refers to the purpose with which an investor approaches his investments.

What Is A Lock-In Period?

Lock-in period is the predefined tenure for which an investor is prohibited from withdrawing, redeeming or selling his investment.

What Is Liquidity?

Liquidity is the ease with which financial assets can be converted to ready cash, without triggering volatility in the market. Mutual fund investments, for example, have moderate liquidity.

What Is A Redemption Fee?

A redemption fee is levied by an AMC at the time of redemption of an investment. It is also known as the exit load.

What Are Risk-Adjusted Returns?

A risk-adjusted return is a calculation of the profit from an investment that takes into account the degree of risk involved in achieving the expected return.

What Is Market Risk?

Market risk is the inherent risk of losses associated with financial investments. Such losses are a result of a decrease in the value of the asset held, which can be triggered by a number of factors.

What Is A Minimum Investment Amount?

Minimum investment amount refers to the smallest amount of money or the least number of shares that an investor can purchase when investing in specific equity or fund.

What Is Cube Wealth?

Cube Wealth is a digital wealth management platform that gives users access to expert investment advice from industry-leading experts like Wealth First; Purnartha; RIA, Rick Holbrook; and more. 

Cube Wealth helps investors pick the right investments based on their risk profile and goals to build a perfect portfolio of investments.

Who Is A Wealth Advisor?

A wealth advisor is an investment advisor who specializes in designing asset management and investment strategy specific to the client’s objectives like Cube's mutual fund advisor, Wealth First. You can consult a Cube Wealth coach or download a Cube Wealth coach.

Wealth First is a financial asset investment advisory. Their compressive service basket includes investment strategizing, asset research, asset allocation, tax planning, broking service, treasury management, risk management and retirement planning.

It was founded in 2000 and stands at an AUM of ₹7,000+ Cr. and over 3000 clients at present.

Who Is A Wealth Coach?

Cube Wealth Coaches are wealth management experts who readily offer investment-related advice. They offer tailored recommendations on the basis of investors' investment goals and risk appetite. Investors can consult a wealth coach on a call or via message on WhatsApp.

What Is QuickSIP?

Quick SIP (Systematic Investment Plan) is an investment option on Cube Wealth that allows investing small amounts in a specific stock(s), exchange-traded funds, or mutual funds at regular intervals. 

The Cube Wealth app includes a QuickSIP guide and a risk quiz that you can take to understand your risk profile and get SIP recommendations tailored to your needs.

What Is SuperSIP?

Super SIP is a unique facility—available only on Cube Wealth—that lets investors change their SIP due date, along with the flexibility to pause and top-up their SIP investments at any time.

What Is A Risk Analysis Quiz?

A risk analysis quiz is a set of questions that helps you determine the level of risk associated with an investment. The analysis is based on the answers to the quiz questions.

Summary

A mutual fund scheme makes investments through a fund manager using a pool of money collected from multiple investors. Fund managers are experts who ensure better stock choices as compared to novice investors. 

Mutual funds also give you the flexibility to invest small amounts instead of making a lump sum investment. They are relatively safe, transparent, and a good tax-saving investment. E.g. ELSS Mutual Funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act.

However, mutual fund investments are a relatively high-risk instrument in comparison to fixed deposits and digital gold investments. Thus, it is suggested to consult a wealth coach to choose an investment that matches your investment objectives and risk appetite.

Think you know all about mutual funds? Take this 1-minute quiz and win a free consultation with a Cube Wealth Coach if you get 8 or more right!

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