INVESTMENT GLOSSARY

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• Absolute Returns

  There are 2 ways in which returns are depicted- Absolute and annualised. Generally, returns for a less than one year period are shown as absolute returns while returns for a period greater than one year are shown as annualised returns or per annum returns.

• Account Statement

  A mutual fund account statement is a document similar to a bank account statement that indicates the mutual fund units owned by an investor, the cost and current value of the units (in Rs.). One can receive an account at any frequency at any time by email and monthly if it is physical.

• Accrual Strategy

  There are two ways in which a bond fund earns returns – bond price appreciation and bond coupon receipts. An accrual strategy uses the latter approach to generate returns by predominantly investing in stable interest bearing securities.

• Actively Managed

  There are two ways in which funds are managed. One is the discretionary style while the other is non-discretionary. The former uses the fund manager’s judgment to buy and sell securities and is termed as Active Management and the funds are called as Actively Managed Funds.

• Alpha

  Actively managed funds aim to generate Alpha which is the excess return generated over and above the benchmark index. This is attributable to the fund manager’s skills.

• AMFI

  Association of Mutual Funds in India or AMFI represents all Fund Houses as a group in terms of any discussion with SEBI, distributors or investor associations. It also aims to promote best practices among mutual funds. All mutual fund distributors need to be registered with AMFI.

• Annual Report

  A write-up given to unit-holders 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 annually.

• Annualised Returns

  There are 2 ways in which returns are depicted- Absolute and annualised. Generally, returns for a less than one year period are shown as absolute returns while returns for a period greater than one year are shown as annualised returns.

• Application Amount

  This is the minimum investment amount for a new investor in a mutual fund scheme.

• Arbitrage Funds

  Invest in stocks and derivatives where the latter is an equal and opposite position. Arbitrage funds thus carry a relatively lower risk being a completely hedged portfolio. They are classified as equity funds for tax purposes as they predominantly invest in equities.

• ARN

  AMFI Registration Number or ARN is issued by AMFI to all mutual fund distributors who are registered with it as financial intermediaries selling mutual funds. It is stamped on the application form so that assets mobilized can be captured to compute brokerage of the distributor. All ARN holders must clear the AMFI / NISM certification test.

• Asset

  Any holding with monetary value such as stocks, bonds, real estate, gold and cash.

• Asset Allocation

  Investment strategy that diversifies assets among stocks, bonds, gold and money market instruments to help reduce investment risk. It describes the composition of a fund’s or an individual’s portfolio. For equity funds, this would include a geographic and sector breakdown. For bond funds, it would show the split between government, corporate and other fixed-income securities.

• Asset Class

  Different types of investments such as stocks, bonds, gold, real estate and cash. Each asset class depicts similar characteristics

• Asset Management Company (AMC)

  A firm that invests the pooled funds of investors in securities, in line with the stated investment objectives. For a fee, the investment company provides diversification, liquidity, and professional management service.

• Assets under management (AUM)

  Refers to the cumulative market value of investments managed by a mutual fund.

• Average Maturity

  Maturity of a bond portfolio is a key variable to understand the impact of interest rates or interest rate risk. This is calculated as the average maturity of all bonds weighed by the percentage holding of each in the portfolio. Longer the maturity, higher the interest rate risk.