Basic terms of Mutual Fund

Basic terms of Mutual Fund

In this article you will know, basic terms the Mutual fund.

Mutual Fund

A mutual fund is a company that pools money from many investors(you and me) and invests the money in securities such as stocks, bonds, and short-term debt.


Asset Management Company is a money management firm of your investment with investment objectives, handled the day to day operation and investment decision by Fund Management and professional research team. The function of managing asset(your investment) on behalf of an investor and get fee for management cost from you.


New Fund Offer is the first subscription offering for any fund being introduced by a AMC based on benchmark, Sector, Strategy, etc.

Active Fund

A fund is actively manage by Fund manager who is make the investment decision based on his experience and strategy, etc.

Expense Ratio

It indicates how much the fund charges in term of percentage annually to manage your investment portfolio.

Direct Plan

You Invest directly with the AMC using online without distributor and it has low expense ratio for your investment.

Passive Fund

A fund invest to the exact ratio of the particular index like Nifty50/Sensex digitized and returns are approximately similar to that index.


An investors invest the amount in a specific Mutual Fund scheme in the count of Units or Unit shares.

Face Value

AMC fixed the cost of a single unit at the time of fund launch is Face Value or Original value.


Net Asset Value represents the price at which a mutual fund may be bought by an investor or sold back to a fund house. A mutual fund’s NAV is an indicator of its market value.

Net Asset Value = [Total Asset Value— Expense Ratio] / Number of Outstanding units


Compounded Annual Growth Rate is a representation of the compounded growth of your mutual fund investments. It shows the fund’s average annual growth or decline over a specific period of time.

Folio Number

A folio number is a unique number allotted to each mutual fund investor with a AMC. An investor holding one or more funds with single AMC referred with this folio number.

Rupee Cost Average

An investor in the same scheme at regular intervals and it helps to buy more units and reduce major loss when price is low.

Open End Fund

Open-end fund is a collective investment scheme that can issue and redeem shares at any time.

Closed-end fund

Closed-end fund is a collective investment scheme that can issue and redeem shares at maturity time.


Systematic Investment Plan is a facility to invest fixed amounts in a particular mutual fund at regular intervals for a long term wealth.

Consolidated Account Statement (CAS)

Consolidated Account Statement is a monthly statement that captures all financial transactions of an investor across different mutual funds. It also captures the opening and closing balances of the various portfolios linked to a PAN. CAS is sent by either CDSL, NSDL, or both. These are government registered share depositories.

Non-financial transactions like changes to bank detail, address, nominees, etc are however not captured in a CAS.


Securities are financial assets. They mainly fall into 2 categories: debt and equity. Under debt, there are securities like bonds, banknotes, etc. Under equity, there are securities like shares, ETFs, etc.

Scheme Information Document (SID)

Scheme Information Document (SID) is one of the documents prepared by a mutual fund company for every mutual fund scheme they launch. An SID contains important details like fee, underlying assets (equity, debt, etc.), minimum investment criteria, SIP details, exit load, benchmark, fund managers, and more. It is advised that all mutual fund investors read the SID and other offer documents prepared by a mutual fund company before they invest in any mutual fund.

Real Estate Investment Trust (REIT)

REITs is usually a company that owns and operates several real estate properties that may be commercial or residential in nature. Similar to mutual funds, REITs pool money from investors and invest in real estate. Usually, to invest in real estate, a large amount of money is required. With REITs, investors can start investing in real estate with very little money also. REITs are also considered a lot more liquid (easy to put in and take out money) when compared to owning real estate directly. REITs are very popular in western nations. In India, they’re a relatively newer concept though their popularity is rising.

Value Fund

Value Funds are a subcategory of equity mutual funds. Value funds invest in stocks of companies that the fund manager feels are undervalued. In the stock markets, some stocks are considered overvalued if the stock price is too high with respect to the underlying business/company. On the other hand, some stocks are considered undervalued if the stock price is too low with respect to the underlying business/company. Stocks that are valued correctly are called fairly valued stocks. There’s no clear definition of what overvalued, undervalued, and fairly valued is. It depends from investor to investor. Although if the price of a stock is too high or too low, most investors are able to agree on a stock being overvalued or undervalued.


Bonds are basically proof of a loan. Instead of going to a bank, the bond issuer raises money from investors who buy its bonds. The issuer pays interest at predetermined intervals (usually annually or semiannually) and returns the principal on the maturity date, ending the loan. Bonds are usually issued by corporates, municipalities, and governments to raise money. A bond contains all details pertaining to a loan including the borrower, the lender, the amount, the interest rate, the maturity date, and a few other details. Different types of debt funds invest in different types of bond papers.

Debt Funds

Debt funds are mutual funds that invest in bonds and other fixed-income securities. In general, there is much less volatility in debt funds than in equity mutual funds. At the same time, the returns are also lower. Note, this does not mean all debt funds are lower risk than all equity mutual funds.

Taxable Income

Taxable income refers to the amount on which the government calculates tax. This amount includes all income and excludes all deductions.

For example, your income from your salary, your other income like interest, rental income, etc. are all added up. From that, subtract Rs 2.5 lakh – in India, the first Rs 2.5 lakh is deducted. Then, other deductions like standard deduction, investments made under section 80C, HRA deductions, and so on are all removed from your total income. What is left is the taxable income. The tax applicable to you is calculated based on this taxable income.

Tax Return

It is a form that taxpayers have to fill for every financial year. This form contains all the information about an individual’s income from all sources. The form also contains other details that might be necessary to finish your tax filing procedure. In some cases, it may include your expenditures, exemptions, and so on.


An asset is anything that has value or might have value in the future. All investments are assets. Stocks, bonds, real estate, gold, silver, precious metals – they’re all assets. This is why mutual fund companies that run mutual funds are also called asset management companies (AMC).

Asset Allocation

Asset allocation refers to the distribution of money across different assets when investing. Let’s say there are a number of assets you can invest in: shares, mutual funds, bonds, etc. Asset allocation refers to how you distribute your total investment across different assets. Many fund managers believe asset allocation is vital to a good investment strategy. This is opposed to investing in only a limited number of assets.

Coffee Can Investing

The idea behind coffee can investing is to invest in good assets and not make any changes after that. People who follow this form of investing tend to believe that if investments (shares, mutual funds, etc) are chosen well, they need not be touched until the money is required. This method leads to lower taxes, transaction fees, etc. Coffee can investors do not rebalance their investments periodically.


In investing, many investors tend to maintain a target ratio like 80% of investments in equity and 20% in debt. Over time, certain assets grow faster than others. This causes the ratio to become distorted. So in such a case, investors tend to take out money from one asset and put it in another to ensure the target ratio is met. The act of taking money from one investment and reinvesting it into another is called rebalancing.


ESG – Environmental, Social, and Governance. ESG is a set of standards that are used to judge if an investment is environmentally and socially conscious, and has good governance practices within the company. It is believed by many that ESG investments are more likely to survive long term because of their responsible practices. Many AMC offers ESG funds – mutual funds that invest in stocks of companies they feel are ESG compliant.


I hope that you read the articles How to invest in Mutual Funds and What is Mutual Fund and its types to know basic idea of mutual fund. Online brokerage platform web site and mobile apps like PayTM Money, Groww, etc. available to invest in Mutual Fund with “0” commission with Direct Plan.
You start to invest with Liquid Fund and slowly invest to Hybrid fund and then invest to Index fund and finally invest with Equity funds.
Just try with a small amount and Happy Saving.

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