Glossary
A
Alpha
A measure of performance, denoting the extent to which a strategy, trader, or portfolio manager has achieved better than the market return over a given period. Often considered the active return on an investment, ‘alpha’ measures the performance of the investment against a market index or benchmark that is taken to represent the market’s movement as a whole. If the Alpha of a fund is 1, it means the fund beat its benchmark by 1%. A negative Alpha would denote that the fund has underperformed.
Arbitrage
A strategy whereby an investor buys an asset in one market and then sells it in another, to take advantage of the price difference and generate a profit.
Asset Allocation
An investment strategy that aims to balance reward and risk by allocating investment funds into a variety of financial assets such as equities, fixed income, cash and cash equivalents, and alternate investments, according to an investor’s goals, investment horizon and risk tolerance.
Asset Management Company
An organisation registered with SEBI, which takes investment decisions on behalf of a mutual fund and manages the assets of the fund.
Average Maturity
The weighted average of all the current maturities of the debt securities held in a portfolio. The weightages correspond to the percentage holding of each security in that portfolio.
B
Balanced Mutual Fund
A hybrid mutual fund that seeks both income and capital appreciation, by investing in a portfolio of stocks and bonds
Benchmark
A group of securities (usually unmanaged) whose performance is used as a yardstick to gauge investment performance. Typically, broad market indices are used as a benchmark. Examples include the BSE Sensex and Nifty 50.
Beta
A measure of the volatility of a scheme relative to its market benchmark. If the beta of a scheme is greater than 1, the scheme is more volatile than its benchmark. If beta is less than 1, the scheme is less volatile than its benchmark.
Blue Chip Fund
An equity mutual fund that invests in stocks of companies with large market capitalisations. These tend to be well-established companies with a track record of good performance over time, offering potentially steady and positive returns.
Bond Fund
Often labelled a debt fund, a bond fund invests in government or corporate bonds or other debt instruments, generating income for investors on a monthly basis.
Bond Rating
A measure of the likelihood the debt will be repaid, which determines the cost of borrowing for an issuer. Independent rating agencies such as Moody’s, S&P, CRISIL, CARE, ICRA and Fitch assign letter grades to a bond to indicate its creditworthiness, based on their evaluation of the issuer’s financial strength and ability to pay a bond’s principal and interest in a timely manner.
Bond Yield
The return earned from the bond's interest payments, expressed as a percentage of the original investment.
C
Capital Gain
A profit made when the price of a security held by a mutual fund rises above its purchase price. If the security is sold, the capital gain is realised; if it is held back, the capital gain remains unrealised. Conversely, capital loss occurs when the price of a security drops below its purchase price.
Certificate of Deposit
A money market instrument that is issued in a dematerialised form against funds deposited in a bank for a particular period, as per the guidelines of the Reserve Bank of India.
Closed-End Schemes
Mutual fund schemes that come with a stipulated maturity period, as opposed to open-ended funds. This means investors cannot buy the units of a closed-end fund after its NFO period is over and also cannot exit before maturity. The scheme may be listed on exchanges to provide liquidity.
Compound interest
The interest received on a deposit or loan, calculated based on both the principal and the accumulated interest from earlier periods. By virtue of being ‘interest on interest’ (rather than interest on just the principal), compound interest grows at a faster rate than simple interest.
Custodian
The trust company or the bank that maintains the assets of a mutual fund, including its portfolio of securities, or some record thereof. The custodian is in charge of safekeeping of the securities but does not play any role in portfolio management.
D
Distributor
An individual or entity that helps investors buy or sell mutual funds based on their financial goals.
Diversification
The strategy of owning a variety of investments that are likely to perform well in different scenarios, thus reducing the volatility of the portfolio. It helps reduce un-systemic portfolio risk while maintaining healthy levels of investment returns.
Dividend Stripping
A short-term trading strategy in which you buy a stock shortly before a dividend is declared, with the intention of selling it off immediately after the dividend has been paid.
Dividend Yield
The dividend paid out to shareholders relative to the price per share. If a company has a high dividend yield, this means it pays out a large part of its profits in the form of dividends.
E
Entry Load
The fee charged from an investor for joining a scheme. It is usually deducted from the investment amount, reducing the quantum of investment. In 2009, SEBI abolished the practice of charging entry loads for mutual fund schemes.
Equity Fund
A fund that invests predominantly in equities. These funds usually generate substantial returns over time and are thus good investment options for capital appreciation.
Equity-Linked Savings Scheme (ELSS)
A type of equity mutual fund, with a three-year lock-in period, which qualifies for tax deduction under Section 80(C) of the Income Tax Act.
Exchange Privilege
The opportunity for mutual fund investors to exchange their investment in one fund for another within the same fund family. Investors can thus adjust their investment strategy based on market conditions and optimise their returns, harnessing the full potential of the funds offered by the company.
Exit Load
The fee charged when an investor exits a scheme partially or fully within a specified period (defined in the SID). Not all schemes charge an exit load.
Expense Ratio
These are a fund's costs, such as administrative expenses, transaction fees, investment management fees, audit fees etc. calculated as a percentage of the fund’s daily net assets
F
Family of Funds
The set of mutual funds managed by a particular investment management firm. These may include mutual funds of various investment strategies and asset classes. Investors may stick with a particular family of funds to avail of a one-stop shop and may receive additional benefits and discounts.
Floating Rate Debt
A debt or bond fund where interest payments are adjusted periodically based upon a predetermined benchmark. This offers investors flexible interest income and can boost the yield of a portfolio in a rising rate environment.
Folio Number
Similar to a bank account number, this is a unique account number assigned by a fund house to an investor. The investor can simply quote the folio number to get a list of his or her holdings with the fund house.
Fund of Funds
A mutual fund scheme that invests in other mutual fund schemes instead of directly investing in stocks and bonds. This scheme may invest across asset classes based on investment objectives.
G
Geographic Funds
Mutual funds that focus their investments on a particular geographic region, such as South Asia. They typically invest in a diversified portfolio of companies based within that geographical area.
Gilt Funds
Debt funds that invest in government securities and are thus believed to carry minimal risk. As per SEBI norms, these funds should invest at least 80% of their assets in government securities.
Global Fund
A mutual fund that may invest in bonds or stocks across geographies. Investing in global funds can help your overall portfolio returns by allowing you to tap the potential of other markets, while also spreading your portfolio risk.
Government Securities
Securities offered by the central or state governments in the form of bonds, treasury bills or notes.
Growth Plan
A plan where returns are reinvested, instead of being paid out to the unit holder. This allows the unit holder to benefit from compounding in the long run.
H
Hedge Fund
A private investment partnership and fund pool that uses proprietary strategies to invest or trade in complex products, including listed and unlisted derivatives.
Holding Period
The amount of time an investment is held by an investor, or the period between the procurement and sale of a security.
Holdings
A fund’s latest reported securities, ranked by the percentage they constitute of the portfolio’s net assets. This information helps investors clearly identify the drivers of the fund’s performance.
I
Income Distribution cum Capital Withdrawal (IDCW)
A plan whereby the fund pays out dividends from time to time, as and when the respective scheme declare their dividends, thus distributing the distributable surplus among its investors under the IDCW plan
Income Fund
A fund that focuses on providing current income for investors rather than capital growth. It typically invests in bonds and stocks that pay high dividends and interest. SEBI officially classifies Income Funds as debt funds with a Macaulay Duration of 4 years or more.
Index Fund
A fund that specialises in purchasing securities that represent or match a specific index. For example, funds that mirror the components of BSE Sensex.
Interest Rate
The rate paid by a borrower on money borrowed, expressed as a percentage of the sum borrowed over a time period, usually a year.
Interval Schemes
Schemes that allow purchase and redemption during particular periods (or ‘intervals’) at NAV-related prices. Units of these schemes must be compulsorily listed on stock exchanges. The minimum transaction period is 2 days, and there must be at least a 15-day gap between two transaction periods.
J
Joint Applications
An investment (IPO, Mutual Fund, etc.) application in the name of more than one person. In these cases, payments are always made in favour of the first applicant.
Junk Bonds
Bonds issued by corporations of questionable financial strength, or those lacking a proven track record. These tend to be more volatile but can yield potentially higher returns compared to bonds with superior quality ratings.
K
L
Liquid Funds
Debt funds that invest in fixed-income securities that mature within 91 days. These funds come with no lock-in period, so your assets won’t be tied up for a long time.
Liquidity Risk
The risk that the marketplace might not have enough buyers when an investor seeks to sell a security, or enough sellers when an investor wishes to buy one.
Lock-in Period
A period during which investments cannot be sold or redeemed. This is common with hedge funds, IPOs of private equity firms, startups and some mutual funds.
Long-term bond fund
A fund that mainly invest in government securities and corporate bonds with long maturity periods. These funds are vulnerable to interest rate fluctuations over time and are thus potentially more volatile than short-term debt funds.
M
Macaulay Duration
The weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.
Management Fee
The amount a mutual fund pays to its investment advisor for portfolio management and other services. Equity mutual funds can charge a maximum expense ratio of up to 2.25%, while debt funds can charge up to 2%.
Market Capitalisation
The aggregate valuation of a company based on its current share price multiplied by the number of total outstanding shares of the company.
Modified Duration
A measure of the effect of a change in interest rates on the price of a bond. The higher the modified duration, the greater the impact of an interest rate change on the bond price, and vice versa.
Money Market Fund
A mutual fund that invests only in money markets and instruments specified by the RBI, such as commercial bills, treasury bills and commercial papers.
Monthly-Income Plans
Primarily debt-oriented schemes whose objective is to generate relatively modest and stable returns, ideally on a monthly basis.
Mutual Fund
An investment fund that pools money from many investors to purchase stocks, bonds and other securities. Each investor is then allotted 'units’, which represent a portion of the holdings of the fund.
N
Net Asset Value (NAV)
A measure of a mutual fund’s market value per unit. NAV is calculated by dividing the complete value of all the cash and securities in a fund’s portfolio (minus its liabilities and expenses) by the number of units issued.
New Fund Offer (NFO)
This is the first subscription offering for any new fund offered by an asset management company (AMC), allowing it to raise capital for purchasing securities. AMCs offer NFOs for a specific period, during which investors can buy mutual fund units at a specified offer price (after the NFO closes, they can buy units at the current NAV).
O
Offer Document
A formal document containing essential information about a scheme, designed to help investors make an informed investment decision. It is also referred to as the ‘prospectus’.
Open-ended scheme
A type of scheme that is available for subscription and redemption on a continuous basis.
Option
A contract that gives the option-holder the right (without imposing any obligation) to buy or sell the underlying asset at a specific price within a certain period. An option is a security in itself, just like a stock or bond, and is labelled a derivative because its value is ‘derived’ from the underlying asset.
P
Payable Date
The date on which declared stock dividends are to be paid to eligible investors who do not wish to reinvest in the fund.
Portfolio Manager
A professional hired by a mutual fund house to make investment decisions regarding the sale and purchase of securities for the mutual fund portfolio, in line with the fund’s objectives.
Portfolio Turnover Ratio
A measure of how frequently a scheme sells or buys securities. A fund with an annual turnover rate of 100% replaces its entire portfolio over the course of a year, whereas a fund with a 50% turnover rate replaces half its holdings in that period.
Premium
The amount by which a stock or bond trades above its face value.
Prime Rate Fund
A closed-end mutual fund that attempts to provide yields that match the prime rate (i.e. the interest rate that commercial banks charge their most creditworthy customers) by investing in high-quality corporate debt.
Q
R
Record Date
The cut-off date to determine the list of unit holders eligible to receive benefits such as dividends, bonus and rights.
Reinvestment Privilege
A privilege given by some funds to their shareholders, to use income or capital gains to buy additional shares of the fund without any sales charge.
Rollover Option
An option given by some funds to investors at the time of redemption, to reinvest the overall amount.
S
Sector Fund
An equity scheme which invests only in companies operating in a particular sector or industry, e.g. an auto fund would invest only in automobile companies.
Sharpe Ratio
A measure of the risk-adjusted performance of a financial portfolio, denoting the excess return you may receive in return for the volatility of holding a riskier asset. The higher the Sharpe Ratio, the better the fund performs relative to its peers.
Standard Deviation
A measure of performance fluctuations – the higher the standard deviation, the greater the volatility of returns. However, as a historical measure, standard deviation cannot necessarily be used to predict a fund’s future performance.
Systematic Investment Plan
A plan offered by most mutual funds, wherein a fixed amount is automatically deducted every month from an investor’s bank account and invested in the mutual fund of their choice.
Systematic Withdrawal Plan (SWP)
A type of mutual fund investment plan that allows investors to withdraw fixed amounts of money at regular intervals (e.g. monthly, quarterly, yearly) from their investment in a mutual fund scheme.
T
Treasury Bills
Government bonds or debt securities sold through the Reserve Bank of India for short-term borrowing, with maturities of 91 days to 364 days.
Treasury Stock
A type of stock that a company issues and then buys back and places within its treasury. Once in the treasury, it does not earn any dividends or carry any privileges such as voting.
Treynor Ratio
Also called the reward-to-volatility ratio, this ratio helps determine the surplus return (i.e. returns earned above those a risk-free investment could earn) generated on each unit of risk a portfolio has taken. It is calculated by dividing the surplus return by the portfolio’s Beta. Higher values are more desirable and imply greater returns per unit of systematic risk.
Trigger
An option given to a unit holder to enable automatic redemption or switch to another scheme when a particular event occurs (e.g. Sensex level dropping below a certain mark). This saves an investor the trouble of constantly tracking the market, and helps mitigate risk too.
U
Unit
A measure of an investor's holding in a mutual fund scheme and the smallest portion of ownership.
Unit Holder
An individual who invests in a mutual fund scheme. Unit holders are allotted specific rights as outlined in the trust declaration that governs the trust’s actions.
V
Venture Capital Fund
Pooled investment vehicles that provide capital to start-ups and small and medium businesses in exchange for an ownership stake in the company.
Volatility
The relative rate at which the price of a security moves up or down.
W
X
Y
Yield Curve
A line that tracks the yields on bonds of similar credit quality, but with different maturities. The slope of the yield curve gives an idea of likely future interest rate changes and economic activity.
Yield to Maturity
This is the rate of return an investment would generate if held till its maturity date.
Z
Zero Coupon Bond
A bond that does not pay interest but issued at a discount to its face value, yielding a profit at maturity when it is finally redeemed at total face value.
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PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC)
on the basis of publicly available information, internally developed data and other third-party
sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information,
assure its completeness, or warrant such information will not be changed. The information contained
herein is current as of the date of issuance* (or such earlier date as referenced herein) and is
subject to change without notice. The AMC has no obligation to update any or all of such
information; nor does the AMC make any express or implied warranties or representations
as to its completeness or accuracy. There can be no assurance that any forecast made
herein will be actually realized. These materials do not take into account individual
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each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard.
The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein.
The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of
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