Mutual Fund Terms You Must Know Before Investing (Beginner-Friendly Glossary)

Basic Mutual Fund Terminology

1. Mutual Fund

An investment instrument that collects money from investors to buy a diversified portfolio of assets like stocks, bonds, debt etc.

2. AMC (Asset Management Company)

The firm that manages your mutual fund. Examples: HDFC AMC, ICICI Prudential AMC etc.

3. NAV (Net Asset Value)

The price per unit of a mutual fund. It is calculated as:

NAV = (Total Assets - Liabilities) ÷ Number of Units Outstanding

4. Units

These represent your share of the mutual fund. You receive units in exchange for your investment.

Investment Methods

5. Lumpsum

Investing a one-time amount in a mutual fund.

6. SIP (Systematic Investment Plan)

A method to invest a fixed amount regularly (monthly / daily / weekly / quarterly). Great for disciplined investing and rupee cost averaging.

7. SWP (Systematic Withdrawal Plan)

Allows you to withdraw a fixed amount from your investment periodically.

8. STP (Systematic Transfer Plan)

Transfers a fixed amount from one mutual fund scheme to another (e.g., from a debt fund to an equity fund).

Types of Mutual Funds

9. Equity Funds

Invest in stocks. High risk, high return. Best for long-term growth.

10. Debt Funds

Invest in fixed-income securities like bonds. Lower risk, suitable for short- to medium-term goals.

11. Hybrid Funds

Combine both equity and debt. Balanced risk and return.

12. Index Funds

Track market indices like Nifty 50 or Sensex. Passive and low-cost.

13. ELSS (Equity Linked Saving Scheme)

A tax-saving mutual fund with a 3-year lock-in period. Eligible for tax deduction under Section 80C.

Mutual Fund Performance Terms

14. Expense Ratio

The annual fee charged by the fund house to manage your money. Lower is better.

15. AUM (Assets Under Management)

Total money managed by a mutual fund.

16. Benchmark

An index used to compare the fund's performance (e.g., Nifty 50, Sensex).

17. Alpha

Indicates how much the fund has outperformed (or underperformed) its benchmark.

18. Beta

Measures fund volatility compared to the market. A beta > 1 indicates higher volatility.

19. Sharpe Ratio

Shows risk-adjusted return. Higher Sharpe = better return for the risk taken.

Time & Exit-Related Terms

20. Lock-in Period

Duration during which you cannot sell or redeem your mutual fund units.

Like ELSS has a 3-year lock-in. Apart from ELSS, most of the mutual funds have 0 lock-in period.

21. Exit Load

A fee charged when you redeem units before a certain period (usually 1%).

22. Redemption

The process of selling your mutual fund units and withdrawing money.

23. Cut-off Time

The deadline to invest or redeem to get the same-day NAV.

Taxation Terms in Mutual Funds

24. Capital Gains

Profits or Returns from mutual fund investments are taxed based on the holding period.

• STCG (Short-Term Capital Gains): Taxed at 20% for equity funds (<1 year).
• LTCG (Long-Term Capital Gains): Taxed at 15% for equity funds (>1 year, after ₹1.25 lakh exemption).

25. Dividend (IDCW)

Previously called Dividend, now Income Distribution cum Capital Withdrawal. Taxable in your hands.

Other Important Terms

26. KYC (Know Your Customer)

A mandatory identity verification process before investing.

27. Fund Manager

The expert(s) responsible for making investment decisions for the fund.

28. Direct vs Regular Plans

• Direct Plan: Lower cost, invest directly via discount broker like Groww, Zerodha etc. from AMC website.
• Regular Plan: Invest through a distributor; higher cost due to commission.

29. Growth vs IDCW Option

• Growth: Profits reinvested. Best for compounding. (Recommended)
• IDCW: Periodic payout of profits. (Not Recommended)

30. Riskometer

Displays the risk level of a mutual fund, ranging from Low to Very High.

If you really learn anything about mutual funds, please like, comment and share this post to your friends, families and other people😊.