Mutual Fund Glossary A-Z — 100+ Terms Explained

Plain-English definitions of the mutual fund and investing terms you'll meet on Dhanik and in scheme documents — from NAV and expense ratio to Sharpe ratio and exit load. Each term links to a full explanation with formula and a worked example.

Structure

NAV (Net Asset Value) — The price of one unit of a mutual fund, calculated daily from portfolio value minus liabilities divided by units outstanding.
AUM (Assets Under Management) — The total market value of all assets managed by a mutual fund scheme or AMC. A key indicator of fund scale.
Fund Manager — The professional responsible for managing a mutual fund portfolio — making buy/sell decisions to achieve the stated objective.
Equity Fund — A mutual fund investing primarily (≥65%) in stocks. Highest long-term return potential but highest short-term volatility.
Debt Fund — A mutual fund investing in fixed income securities — bonds, G-Secs, commercial paper. Lower risk than equity but also lower returns.
Hybrid Fund — A mutual fund investing in both equity and debt. Middle ground between pure equity (high risk) and pure debt (low risk).
Index Fund — A passively managed fund replicating a market index like Nifty 50. Ultra-low cost (0.05%). Most active funds underperform over 10+ years.
ETF (Exchange Traded Fund) — Like an index fund but traded on a stock exchange at real-time prices. Requires a demat account. Slightly cheaper than index funds.
FOF (Fund of Funds) — A fund that invests in other mutual funds instead of directly in stocks or bonds. Often used for international fund access.
Large Cap Fund — A fund investing at least 80% in the top 100 companies by market cap. Lower volatility with stable blue-chip exposure.
Mid Cap Fund — A fund investing at least 65% in companies ranked 101-250 by market cap. Higher return potential than large cap but significantly more volatile.
Small Cap Fund — A fund investing at least 65% in companies ranked 251+ by market cap. Highest return potential but most extreme drawdowns. Requires 10+ year horizon.
Flexi Cap Fund — An equity fund with no restriction on market cap allocation. The manager can invest freely across large, mid and small cap stocks.
Multi Cap Fund — An equity fund required by SEBI to maintain at least 25% each in large, mid and small cap. Guarantees diversification across market caps.
NFO (New Fund Offer) — The initial offering period when a new mutual fund launches at ₹10 face value. No NAV history to evaluate — be cautious.
IDCW (Income Distribution cum Capital Withdrawal) — Previously called the dividend option. The fund distributes money from its NAV. Not a bonus — your NAV falls by the distribution amount.
Growth Option — The default option where all returns are reinvested — no payouts. NAV compounds over time. Tax-efficient for long-term investors.
AMC (Asset Management Company) — The company that manages mutual fund schemes — like HDFC AMC, SBI Funds, Nippon India MF. SEBI-regulated.
SEBI (Securities and Exchange Board of India) — The regulatory authority that governs all mutual funds and securities markets in India. Sets rules for AMC operations and investor protection.
AMFI (Association of Mutual Funds in India) — The self-regulatory body of Indian mutual funds. Maintains NAV database, certifies distributors and publishes monthly fund flow data.
RTA (Registrar & Transfer Agent) — The back-office service provider handling all mutual fund investor transactions, records and statements. CAMS and KFintech are India's major RTAs.
Trustee Company — The legal guardian of mutual fund investors' assets. Oversees the AMC and ensures it operates in investors' best interests.
Gilt Fund — A debt fund investing only in Government Securities. Zero credit risk since backed by the government, but significant interest rate risk.
Liquid Fund — A debt fund investing in money market instruments with maturity up to 91 days. Very low risk, T+1 redemption, returns better than savings accounts.
Money Market Fund — A debt fund investing in money market instruments with maturity up to 1 year. Slightly higher yield than liquid funds.
Overnight Fund — The safest debt fund — invests only in overnight (1-day maturity) instruments. Virtually no risk. Returns slightly lower than liquid funds.
Thematic Fund — An equity fund focused on a theme across sectors — like ESG, digital transformation, consumption or manufacturing. Higher concentration risk.
Sectoral Fund — An equity fund investing at least 80% in a single sector — banking, pharma, IT, etc. High concentration risk and cyclical performance.
Balanced Advantage Fund (BAF) — An equity-debt hybrid that dynamically adjusts allocation based on market valuations — reducing equity when expensive, increasing when cheap.
Folio Number — A unique identifier for your investment account with a specific mutual fund house — like a bank account number but for an AMC.
KYC (Know Your Customer) — Mandatory identity and address verification before investing in mutual funds. One-time process — valid across all mutual funds once done.
Redemption — Selling mutual fund units back to the fund house. Proceeds credited to your bank in T+1 to T+3 business days.
FMP (Fixed Maturity Plan) — A closed-end debt fund with a fixed maturity date. Invests in bonds that mature around the same time. Gives relatively predictable returns.
Target Maturity Fund — An open-end index debt fund that invests in bonds maturing in a specific year. Low credit risk (PSU/G-Sec) with predictable returns if held to maturity.
Corporate Bond Fund — A debt fund investing at least 80% in the highest-rated corporate bonds (AA+ and above). Balances safety with slightly better yield than gilt funds.
G-Sec (Government Security) — Bonds issued by the Indian government. Zero credit risk. The underlying asset for gilt funds.
ARN (AMFI Registration Number) — A unique number assigned to AMFI-certified mutual fund distributors. Ensures only qualified intermediaries can sell mutual funds.
CAS (Consolidated Account Statement) — A single monthly statement showing all your mutual fund holdings across all AMCs and folios. Available from CAMS, KFintech or MFCentral.
Cut-off Time / NAV Date — The deadline by which your transaction must be received to get that day's NAV. Typically 3:00 PM IST for most equity funds.

Cost

Expense Ratio — The annual fee charged by a mutual fund as a % of AUM. Covers management fees, operational costs and commissions. Deducted daily from NAV.
Exit Load — A fee charged when you redeem mutual fund units before a specified holding period. Usually 1% if redeemed within 1 year. Nil after the lock-in.
Direct Plan — Mutual fund units purchased directly from the AMC without a distributor. No commission paid, so expense ratio is 0.5-1% lower than regular plans.
Regular Plan — Mutual fund units purchased through a distributor who earns a commission. Higher expense ratio than direct plans.

Returns

XIRR — Extended Internal Rate of Return. The most accurate way to calculate SIP returns — accounts for the exact timing and amount of each cash flow.
CAGR — Compound Annual Growth Rate. Measures how much a lump sum investment grew per year on average. Not ideal for SIP returns — use XIRR instead.
Absolute Return — Total profit or loss as a simple percentage, without annualising. Misleading for comparing across different timeframes.
Annualised Return — Returns expressed as a yearly rate, making different investment periods comparable. For lump sum: CAGR. For SIP: XIRR.
Trailing Returns — Point-to-point returns calculated from today backwards. The most common return metric but sensitive to start/end dates.
Rolling Returns — Returns calculated over all possible periods of a given length. Shows consistency of performance rather than cherry-picked point-to-point returns.
Calendar Year Returns — A fund's return for each calendar year (Jan-Dec). Useful for understanding performance in different market conditions.
Compounding — Earning returns on your returns. Over long periods, compounding transforms modest annual returns into exponential wealth growth.

Strategy

SIP (Systematic Investment Plan) — Investing a fixed amount in a mutual fund at regular intervals — typically monthly. Builds discipline and uses rupee cost averaging to reduce timing risk.
SWP (Systematic Withdrawal Plan) — Withdrawing a fixed amount from a mutual fund at regular intervals. Used to create regular income from a corpus — like a self-made pension.
Dynamic Asset Allocation — An investment strategy that shifts the equity-debt mix based on market conditions. The underlying mechanism of balanced advantage funds.
Asset Allocation — How you distribute investments across asset classes — equity, debt, gold. The single biggest factor in long-term portfolio returns and risk.
Rebalancing — Periodically restoring your portfolio to its target asset allocation by selling outperformers and buying underperformers.
Diversification — Spreading investments across different assets, sectors and geographies to reduce risk. Often called the only free lunch in investing.
Risk Appetite — Your willingness and ability to accept potential losses in exchange for higher returns. The fundamental factor in choosing the right fund.
Investment Horizon — How long you plan to stay invested. Longer horizons allow more equity exposure; shorter horizons require safer assets.
Goal-Based Investing — Linking each investment to a specific financial goal with its own timeline, risk level and suitable fund.
Rupee Cost Averaging — The benefit of investing a fixed amount regularly: you buy more units when NAV is low and fewer when high, reducing your average cost.
Lump Sum Investment — Investing a large amount all at once, as opposed to via SIP. Better when markets are cheap; riskier at market peaks.
STP (Systematic Transfer Plan) — Automatically transfer a fixed amount from one fund (liquid/debt) to another (equity) at regular intervals. Used to deploy a lump sum gradually.
Switch — Moving investment from one mutual fund to another within the same fund house. Treated as redemption + new purchase for tax purposes.
Top-up SIP (Step-up SIP) — A SIP where the monthly contribution increases automatically each year. Helps align investments with salary increments.
Financial Planning — The process of assessing income, expenses, goals and time horizons to create an investment strategy. Mutual funds are typically key instruments.

Metrics

Alpha — The excess return a fund generates over its benchmark. Positive alpha means the manager added value beyond what the market delivered.
Benchmark — The market index a fund is compared against. A fund manager must beat the benchmark consistently to justify active management fees.
Tracking Error — For index funds: how closely the fund tracks its benchmark. Lower is better — high tracking error means the fund deviates from the index.
Information Ratio — Measures how consistently a fund beats its benchmark per unit of active risk. Higher and more consistent is better.
Jensen's Alpha — Risk-adjusted excess return using CAPM. Shows if the manager beat what you would expect given the market risk taken.
Portfolio Turnover Ratio — How frequently a fund buys and sells its holdings. High turnover = more trading costs. Lower is generally better for long-term investors.
Modified Duration — For debt funds: the approximate % change in NAV for a 1% change in interest rates. Higher = more sensitive to rate changes = more interest rate risk.
Macaulay Duration — The weighted average time to receive all cash flows from a bond. The basis for Modified Duration calculations.
YTM (Yield to Maturity) — The annualised return if a bond is held to maturity. Used as a proxy for expected future returns of a debt fund.
R-Squared — How much of a fund's returns are explained by its benchmark. R² of 100 = moves completely with benchmark; 0 = moves independently.
Star Rating — A 1-5 star ranking of mutual funds by rating agencies based on risk-adjusted past performance. Ratings change frequently — do not invest solely on current star ratings.

Risk

Beta — A measure of a fund's sensitivity to market movements. Beta of 1 moves with the market; >1 means amplified moves; <1 means dampened moves.
Sharpe Ratio — Return per unit of total risk taken. Higher is better. Shows how much excess return you earn for each unit of volatility.
Sortino Ratio — Like Sharpe, but only penalises downside volatility. A better measure because upward swings are not a problem for investors.
Standard Deviation — How much a fund's monthly returns fluctuate around their average. Higher = more volatile = higher risk.
Credit Risk — The risk that a bond issuer defaults or is downgraded, causing the fund's NAV to fall sharply. Higher-yield bonds carry more credit risk.
Interest Rate Risk — For debt funds: when interest rates rise, fund NAV falls. Funds with longer duration are most affected.
Liquidity Risk — The risk that a fund cannot sell its holdings quickly at fair value. Can cause redemption delays in small cap or low-rated bond positions.
Drawdown — The percentage decline from a fund's peak NAV to its subsequent trough. Shows how badly a fund fell from its high point.
Maximum Drawdown — The largest peak-to-trough decline in a fund's history. Represents the worst-case loss an investor could have experienced.
Concentration Risk — Risk from over-exposure to a single stock, sector or theme. High concentration amplifies both gains and losses.
Treynor Ratio — Return per unit of market risk (beta). Like Sharpe but uses beta instead of standard deviation.
Risk-O-Meter — SEBI's standardised risk label for mutual funds — a 6-level scale from Low to Very High risk. Displayed on all fund documents.

Tax

ELSS (Equity Linked Savings Scheme) — An equity fund eligible for ₹1.5 lakh deduction under Section 80C. Mandatory 3-year lock-in per installment. Best tax-saving option with equity returns.
LTCG (Long Term Capital Gains) — Tax on mutual fund gains after the qualifying period. For equity: 12.5% on gains above ₹1.25 lakh/year after 1 year. For debt: slab rate.
STCG (Short Term Capital Gains) — Tax on equity fund gains if held less than 1 year. Flat 20% on any gain as per Budget 2024.
Indexation — Adjusts your purchase cost for inflation using the Cost Inflation Index, reducing taxable gains. No longer available for debt funds (post-April 2023).

Market

Nifty 50 — India's benchmark stock market index tracking the 50 largest NSE-listed companies. Primary reference point for large cap equity returns.
Sensex — BSE's benchmark index tracking India's 30 largest companies. Often used interchangeably in news media to describe broad market direction.
Nifty Next 50 — The 50 companies ranked 51-100 by market cap. Companies waiting to enter Nifty 50. Often behaves like a large-mid cap blend.
Nifty Midcap 150 — The 150 companies ranked 101-250 by market cap. Standard benchmark for mid cap mutual funds.
P/E Ratio (Price-to-Earnings) — How much investors pay for each rupee of company earnings. High P/E = expensive valuation; low P/E = potential value.
P/B Ratio (Price-to-Book) — Market price divided by book value per share. Below 1.0 means the stock trades cheaper than its asset value.

Want structured guides instead? Head to Learn, or put the jargon to work in the fund screener.