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Mutual fund glossary

Plain-language explanations of the terms used across mutual fund investing — each with a simple, real-world example.

80C Deduction
Section 80C of Income Tax Act — allows you to reduce taxable income by up to ₹1.5 lakh per year
Example: Investing ₹1.5 lakh in ELSS saves ₹46,800 in tax if you are in the 30% bracket.
Alpha
Extra return earned above the market index — how much better (or worse) the fund did compared to the market
Example: If the market returned 10% and the fund returned 13%, the alpha is +3%.
AMC
Mutual fund company (Asset Management Company) — the organisation that manages the fund
Example: HDFC Mutual Fund, SBI Mutual Fund, Nippon India — each is an AMC.
AMFI
Association of Mutual Funds in India — the industry body that maintains fund data and standards
Example: AMFI publishes the daily NAVs of all mutual funds in India at amfiindia.com.
AUM
Total money managed by a mutual fund — Assets Under Management
Example: A fund with ₹50,000 crore AUM manages money from lakhs of investors.
Beat the Benchmark
When a fund earns more returns than its official comparison index
Example: If the Nifty 50 returned 12% and your fund returned 15%, your fund beat the benchmark.
Benchmark
Official market index used to judge how well a fund is performing
Example: A large-cap fund is compared against the Nifty 50 — if the fund beats Nifty 50, it has performed well.
CAGR
Compound Annual Growth Rate — the average yearly growth rate of an investment
Example: If ₹1,00,000 becomes ₹1,61,000 after 5 years, the CAGR is 10% per year.
Corpus
Total savings accumulated — your final investment pot
Example: After 15 years of SIP, your total corpus might be ₹1.2 crore.
Debt Fund
Fund that invests in bonds and fixed-income instruments — safer but lower returns than equity
Example: A debt fund returns 6–8% per year with much lower volatility than an equity fund.
Direct Plan
A version of a mutual fund without distributor commission — you invest directly with the fund house
Example: A Direct plan of a fund charges 0.5% less per year than a Regular plan. Over 20 years, this saves lakhs.
ELSS
Tax-saving mutual fund — invests in equity with a 3-year lock-in; qualifies for Section 80C deduction
Example: Invest ₹1.5 lakh in ELSS and save up to ₹46,800 in tax if you're in the 30% bracket.
Equity
Stocks — ownership stakes in companies; higher risk but higher long-term returns
Example: When you invest in an equity fund, your money buys shares in companies like Reliance, TCS, HDFC Bank.
Exit Load
A penalty fee charged if you withdraw money before a minimum holding period
Example: An exit load of 1% for withdrawals within 1 year means ₹1,00,000 withdrawal costs ₹1,000 in fees.
Expense Ratio
Annual fee charged by the fund, taken automatically from your returns every year
Example: A 1% expense ratio on ₹10,000 SIP costs roughly ₹83 per month.
Flexi Cap
Fund that can invest across all company sizes freely — no restriction on large, mid, or small cap allocation
Example: The fund manager moves money to wherever the best opportunity is — large-cap today, small-cap tomorrow.
Folio Number
Your unique account number with a mutual fund house
Example: Like a bank account number, your folio number identifies you with a specific AMC.
Growth Option
All profits stay invested in the fund — no payouts; value grows over time
Example: In Growth option, profits compound within the fund, growing your wealth faster over time.
Hybrid Fund
Fund that invests in both stocks and bonds — a balanced approach
Example: An aggressive hybrid fund keeps 65–80% in equity and 20–35% in debt.
IDCW
Income Distribution cum Capital Withdrawal — profits paid out to investors periodically (older term: Dividend)
Example: Choosing IDCW means you receive ₹2–3 per unit occasionally instead of letting profits compound.
Index Fund
A low-cost fund that simply copies a market index like Nifty 50 — no active management
Example: A Nifty 50 index fund holds the exact 50 stocks in the Nifty 50, in the same proportions.
KYC
Know Your Customer — one-time identity verification required before investing in mutual funds in India
Example: Submit PAN, Aadhaar, and a selfie to complete KYC. Done once — valid for all future investments.
Large Cap
Top 100 companies in India by market size — more stable, lower risk
Example: Companies like Reliance, TCS, Infosys, HDFC Bank are large-cap. They are big, established, and more stable.
Lock-in Period
Minimum time you must keep your money in a fund before you can withdraw
Example: ELSS funds have a 3-year lock-in. You cannot withdraw before 3 years from the date of each SIP instalment.
LTCG
Long-term Capital Gains Tax — tax on equity fund profits after 1 year of holding
Example: Profit above ₹1.25 lakh per year from equity funds is taxed at 12.5%. Below ₹1.25 lakh is completely tax-free.
Lump Sum
One-time investment of a large amount — as opposed to monthly SIP
Example: Investing ₹5 lakh at once is a lump sum investment.
Max Drawdown
The worst temporary fall in value from peak to bottom
Example: A 38% max drawdown means ₹1 lakh would have fallen to ₹62,000 at the worst point before recovering.
Mid Cap
Companies ranked 101–250 by size — medium growth potential with medium risk
Example: Mid-cap companies are growing rapidly but not yet as established as large-caps.
Portfolio Diversification
Spreading money across different types of investments to reduce risk
Example: Investing in large-cap, mid-cap, and debt funds together reduces the impact of any one fund performing badly.
Rebalancing
Adjusting your portfolio back to the original planned split of equity, debt, and gold
Example: If equity grew too much and is now 80% of your portfolio, you sell some equity and buy debt to bring it back to 60%.
Redemption
Withdrawing your money from a mutual fund
Example: Redeeming ₹50,000 from your fund means that amount is transferred to your bank within 2–3 days.
Regular Plan
A version of a mutual fund that pays a commission to a distributor — costs you more
Example: A Regular plan charges 1.5% per year; Direct plan charges 0.8%. The 0.7% difference is the distributor's commission.
Risk-o-meter
Official risk label on every mutual fund — from Low to Very High
Example: A small-cap fund will show "Very High" risk on the risk-o-meter; a liquid fund will show "Low" risk.
SEBI
Securities and Exchange Board of India — the government regulator that oversees all mutual funds and stock markets
Example: SEBI ensures fund houses follow rules, disclose information, and protect investor money.
Sharpe Ratio
A score showing how much return you earn for every unit of risk taken — higher is better
Example: A Sharpe ratio of 1.5 means the fund earns good returns relative to its risk. Below 0.5 is considered poor.
SIP
Monthly automatic investment — like an EMI but for your savings
Example: You invest ₹10,000 every month automatically, regardless of whether the market is up or down.
Small Cap
Companies ranked 251+ by size — highest growth potential but highest risk and volatility
Example: Small-cap funds can double your money in 5 years but can also fall 50% in a bad market.
Standard Deviation
How much a fund's returns vary month to month — higher means bigger swings
Example: A fund with 18% SD swings a lot. A fund with 6% SD is smoother.
STCG
Short-term Capital Gains Tax — 20% tax on equity fund profits if sold within 1 year
Example: Selling an equity fund within 12 months of buying means paying 20% tax on the profit.
STP
Systematic Transfer Plan — automatically moving money from one fund to another in instalments
Example: Park ₹5 lakh in a liquid fund, then transfer ₹50,000 per month into an equity fund over 10 months.
SWP
Systematic Withdrawal Plan — automatically withdrawing a fixed amount from your fund every month
Example: After retirement, set up ₹30,000/month SWP from your corpus — like a self-created pension.
Units
Your share of ownership in a mutual fund — like shares of stock
Example: If you invest ₹10,000 and the NAV is ₹50, you get 200 units.
Volatility
How much the fund's value goes up and down over time
Example: Small-cap funds are highly volatile — they can rise 50% in a good year and fall 40% in a bad year.

Educational definitions only; examples are illustrative. Not investment advice. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.