Mutual Fund & PMS Glossary

A privately pooled investment vehicle that collects funds from sophisticated investors for investing in non-traditional asset classes. SEBI regulates AIFs under three categories: Category I (VC, infrastructure), Category II (PE, real estate, debt), and Category III (hedge funds). Minimum investment is ₹1 crore per investor.

The excess return generated by a fund or portfolio over and above its benchmark index. A positive alpha means the fund manager has added value through stock selection or timing. For example, if Nifty 50 returned 12% and your fund returned 15%, the alpha is 3%. Alpha is the primary measure of a fund manager's skill.

A company registered with SEBI that manages mutual fund schemes on behalf of investors. AMCs collect money from investors, pool it, and invest it as per the scheme's stated objective. Examples include HDFC AMC, SBI Funds Management, Nippon India, Mirae Asset, and Axis AMC.

The industry body that regulates and promotes mutual funds in India. AMFI registers Mutual Fund Distributors (MFDs) and assigns them an ARN (AMFI Registration Number). All MFDs must be AMFI-registered. AMFI also publishes monthly AUM data and industry statistics.

A unique identification number assigned by AMFI to registered Mutual Fund Distributors (MFDs). When you invest through a distributor, their ARN is recorded in your investment. This ensures accountability and traceability. Always verify your MFD's ARN on the AMFI website before investing.

The strategy of dividing an investment portfolio across different asset classes — equity, debt, gold, real estate, and cash — to balance risk and return. The right asset allocation depends on your financial goals, investment horizon, and risk tolerance. Asset allocation is considered more important than individual fund selection for long-term wealth creation.

The total market value of all investments managed by a fund house, fund manager, or distributor on behalf of clients. A higher AUM generally indicates investor confidence in the fund house. India's mutual fund industry AUM crossed ₹50 lakh crore in 2024, reflecting the massive growth in retail investor participation.

A dynamic hybrid mutual fund that automatically adjusts its equity-debt allocation based on market valuations. When markets are expensive, BAFs reduce equity and increase debt. When markets are cheap, they increase equity. This makes BAFs ideal for investors who want equity exposure but are uncomfortable with high volatility.

A standard index used to measure the performance of a mutual fund or portfolio. Every mutual fund is compared against a relevant benchmark — for example, a large cap fund is benchmarked against Nifty 50 or BSE Sensex. If a fund consistently underperforms its benchmark, it adds no value over simply investing in an index fund.

A measure of a fund's or stock's sensitivity to market movements. A beta of 1 means the fund moves in line with the market. A beta greater than 1 means it is more volatile than the market (amplifies both gains and losses). A beta less than 1 means it is less volatile. Small cap funds typically have high beta; large cap funds have lower beta.

Shares of large, well-established, financially stable companies with a long track record of reliable performance. Blue chip companies are typically market leaders in their industry with strong brand recognition and consistent dividend payment history. Examples in India include Reliance Industries, HDFC Bank, TCS, and Infosys.

The rate at which an investment grows from its beginning value to its ending value, assuming the profits are reinvested each year. CAGR smooths out year-to-year fluctuations and gives a single annualised growth rate. It is the most commonly used measure to compare long-term fund performance. Formula: CAGR = (End Value / Start Value)^(1/years) - 1.

Tax levied on the profit made from selling a mutual fund unit. In India, equity mutual funds held for less than 12 months attract Short Term Capital Gains (STCG) tax at 20%. Held for more than 12 months, gains above ₹1.25 lakh per year attract Long Term Capital Gains (LTCG) tax at 12.5%. Debt funds are taxed as per your income tax slab regardless of holding period.

A mutual fund with a fixed number of units issued during a New Fund Offer (NFO). After the NFO period, no new units are issued and no redemptions are allowed until the fund matures. Closed-ended funds are listed on stock exchanges for liquidity. ELSS (tax saving funds) have a 3-year lock-in and are technically closed-ended during that period.

The process by which an investment earns returns not just on the original principal but also on accumulated returns from prior periods. Often called the eighth wonder of the world, compounding creates exponential wealth growth over long periods. A ₹10,000 monthly SIP at 12% for 30 years grows to over ₹3.5 crore from a total investment of just ₹36 lakhs.

The total pool of money collected and managed by a mutual fund scheme. A larger corpus can sometimes make it harder for a fund manager to take concentrated positions in smaller stocks. For small cap funds, a very large corpus can dilute returns as the manager is forced to invest in a wider universe of stocks to deploy all the money.

The risk that a bond issuer (company or government entity) may fail to make interest payments or repay the principal on time. Debt mutual funds that invest in lower-rated bonds carry higher credit risk in exchange for higher yields. Credit risk funds explicitly take on this risk. Conservative investors should stick to high-quality debt funds with AAA-rated instruments.

A mutual fund that invests primarily in fixed income instruments such as government bonds, corporate bonds, treasury bills, and money market instruments. Debt funds are less volatile than equity funds and are suitable for short to medium-term goals (1–5 years). They are not risk-free — they carry interest rate risk and credit risk.

A variant of a mutual fund scheme where the investor invests directly with the AMC without going through a distributor. Direct plans have a lower expense ratio as no distributor commission is paid. However, they offer no advisory support, goal mapping, or behavioural guidance. Suitable only for self-sufficient investors with strong financial knowledge.

A type of Portfolio Management Service where the portfolio manager has full authority to make investment decisions on behalf of the client without seeking approval for each transaction. The manager acts according to a pre-agreed investment mandate. Most PMS offerings in India are discretionary, allowing for faster execution and professional judgment.

The strategy of spreading investments across different asset classes, sectors, geographies, and securities to reduce the impact of any single investment's poor performance. The goal is to ensure that losses in one area are offset by gains in another. True diversification requires that the investments are not highly correlated with each other.

Previously called the Dividend Option, SEBI renamed it to Income Distribution cum Capital Withdrawal (IDCW) in 2021. When a fund declares IDCW, the NAV falls by the distributed amount. This is not additional income — it is simply a return of your own invested capital. Growth option is generally more tax-efficient for long-term investors.

A measure of the sensitivity of a bond or debt fund's price to changes in interest rates. Higher duration means greater sensitivity — if interest rates rise, a high-duration fund's NAV falls more. For example, a fund with duration of 5 years will fall approximately 5% if interest rates rise by 1%. Short duration funds are less affected by interest rate movements.

A type of equity mutual fund that qualifies for tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year. ELSS has the shortest lock-in period (3 years) among all 80C investments. Being equity-oriented, it has the potential for higher returns compared to PPF or FD, though it carries market risk.

The annual fee charged by a mutual fund to manage your investment, expressed as a percentage of the fund's AUM. It covers fund management fees, administrative costs, and distributor commissions (in regular plans). The expense ratio is deducted daily from the NAV. SEBI caps expense ratios — equity funds can charge a maximum of 2.25% for regular plans.

A fee charged by a mutual fund when you redeem your investment before a specified holding period. For most equity funds, the exit load is 1% if redeemed within 1 year of investment. After 1 year, most equity funds have zero exit load. Exit load discourages short-term trading and protects long-term investors from the transaction costs caused by frequent redemptions.

A mutual fund that invests primarily in stocks (equities) of companies listed on stock exchanges. Equity funds offer the highest return potential over long periods but also carry the highest short-term volatility. SEBI mandates that equity funds invest at least 65% of their corpus in equities. Subcategories include large cap, mid cap, small cap, flexi cap, sectoral, and thematic funds.

An equity mutual fund that can invest across companies of any market capitalisation — large, mid, or small cap — without any restriction. The fund manager has complete flexibility to move between market caps based on their assessment of opportunities. Flexi cap funds are suitable for investors who want a single equity fund with broad market exposure.

A unique account number assigned to an investor by a mutual fund house. Each AMC gives you a different folio number, but within one AMC, all your schemes are usually under the same folio. Your folio number is required for transactions, nominations, and servicing requests. It is the equivalent of a bank account number in the mutual fund world.

A qualified investment professional responsible for managing a mutual fund scheme's portfolio. The fund manager decides which securities to buy or sell, in what proportion, and at what time, based on the fund's stated investment objective. A fund manager's track record, investment philosophy, and tenure with the fund are important factors when evaluating a mutual fund.

A mutual fund that invests in other mutual funds rather than directly in stocks or bonds. FOFs provide instant diversification across multiple funds and fund managers. International FOFs allow Indian investors to gain exposure to global markets like the US, China, or Europe. They typically carry a slightly higher total expense as both the FOF and the underlying funds charge fees.

A mutual fund option where all profits and returns are reinvested back into the fund rather than distributed to the investor. The NAV of the fund keeps growing over time as returns compound. Growth option is generally more tax-efficient for long-term investors compared to IDCW (dividend) option, as you only pay capital gains tax when you actually redeem.

A debt mutual fund that invests exclusively in government securities (G-Secs) issued by the Central or State Governments. Gilt funds carry zero credit risk since the Indian government is the borrower. However, they carry high interest rate risk — when interest rates rise, gilt fund NAVs can fall significantly. Suitable for investors with a medium to long horizon (3–5 years) who want safety of credit.

An individual with substantial investable assets, typically defined in India as having a net worth of ₹5 crore or above. HNIs have access to investment products not available to retail investors — such as PMS (minimum ₹50 lakhs), AIF (minimum ₹1 crore), and structured products. HNIs typically require personalised wealth management services.

A minimum return threshold that must be achieved before a PMS or AIF manager can charge a performance fee. For example, if the hurdle rate is 10% and the fund returns 18%, the manager charges a performance fee only on the 8% above the hurdle. This aligns the manager's interest with the investor's by ensuring they are rewarded only for genuine outperformance.

A mutual fund that invests in a combination of equity and debt instruments. Hybrid funds offer a middle ground between the high returns of equity and the stability of debt. Types include Conservative Hybrid (mostly debt), Aggressive Hybrid (mostly equity), Balanced Advantage Fund (dynamic allocation), and Arbitrage Fund. Suitable for moderate risk investors.

A mutual fund that replicates the composition of a stock market index like Nifty 50 or BSE Sensex. The fund simply buys all the stocks in the index in the same proportion. Index funds have very low expense ratios and do not depend on a fund manager's skill. They will never outperform the market but will also never significantly underperform it.

A document that outlines the investment objectives, strategies, restrictions, and guidelines agreed upon between the portfolio manager and the investor. In PMS, the investment mandate defines whether the portfolio will focus on large cap stocks, multi cap, or sector-specific strategies, and what risk limits apply. The manager must operate within this mandate at all times.

The SEBI-mandated new name for what was previously called the Dividend Option in mutual funds. When IDCW is declared, the fund's NAV is reduced by the distributed amount. IDCW is not additional income — it is a return of the investor's own capital. It is taxed as per the investor's income tax slab, making it less efficient than the growth option for most investors.

An equity mutual fund that invests at least 80% of its portfolio in the top 100 companies by market capitalisation as defined by SEBI. Large cap funds offer stability and lower volatility compared to mid and small cap funds. They are suitable for conservative equity investors with a 3–5 year horizon. Examples of large cap stocks include Reliance, HDFC Bank, TCS, and Infosys.

A debt mutual fund that invests in money market instruments with a maturity of up to 91 days. Liquid funds are the safest category of mutual funds after overnight funds. They offer slightly higher returns than savings bank accounts and are used to park surplus funds for very short periods (1 day to 3 months). Ideal for emergency funds and short-term cash management.

A period during which an investor cannot redeem their mutual fund units. ELSS funds have a mandatory 3-year lock-in for each SIP instalment. Some closed-ended funds and NFOs also have lock-in periods. PMS investments do not have a statutory lock-in but some managers have a minimum holding commitment. Lock-ins are designed to align investor behaviour with long-term investment goals.

Investing a large amount of money all at once into a mutual fund, as opposed to spreading it over time through SIP. Lump sum investing carries market timing risk — if you invest just before a correction, the portfolio can take time to recover. Generally recommended at market lows or for deploying windfall amounts. For regular income, SIP is usually preferable to lump sum.

The total market value of a company's outstanding shares, calculated as Share Price × Total Number of Shares. SEBI classifies companies as large cap (top 100), mid cap (101–250), or small cap (251 and beyond) based on their market cap ranking. Market cap is the primary way mutual funds categorise the companies they invest in.

An AMFI-registered individual or entity authorised to distribute mutual fund products to investors. MFDs earn a commission from AMCs (included in the expense ratio of regular plans) for distributing funds and providing advisory services. A good MFD provides goal-based planning, fund selection, portfolio monitoring, and behavioural guidance — going far beyond simply selling funds.

An equity mutual fund that invests at least 65% of its portfolio in the 101st to 250th largest companies by market capitalisation. Mid cap companies are in a growth phase and have higher return potential than large caps, but are also more volatile. Mid cap funds require a minimum 5–7 year investment horizon to ride out volatility and capture the full growth potential.

An equity mutual fund mandated by SEBI to invest at least 25% each in large cap, mid cap, and small cap stocks. This ensures diversification across all market segments. Multi cap funds are different from flexi cap funds where there is no minimum allocation requirement for any category. Multi cap funds can be more volatile than large cap but offer broader diversification.

The per-unit price of a mutual fund scheme, calculated by dividing the total value of all assets in the fund by the total number of units outstanding. NAV is calculated at the end of every business day. When you invest in a mutual fund, you receive units at the prevailing NAV. A higher NAV does not mean a fund is expensive — it simply means it has been around longer and grown more.

The initial subscription period during which a new mutual fund scheme is open for investment at a face value of ₹10 per unit. NFOs are similar to IPOs in the stock market. Investing in an NFO is not inherently better or worse than investing in an existing fund. In fact, existing funds with a proven track record are generally preferable to new funds with no history.

The benchmark index of the National Stock Exchange (NSE) of India, comprising the 50 largest and most liquid companies listed on the NSE. Nifty 50 is the most widely tracked equity index in India and is used as the benchmark for most large cap mutual funds. Nifty 50 represents approximately 65% of the total free-float market capitalisation of all NSE-listed stocks.

A mutual fund that is open for investment and redemption on any business day at the prevailing NAV. There is no fixed maturity and no limit on the number of units. Most mutual funds in India are open-ended. This provides complete liquidity to investors who can enter or exit at any time (subject to exit load if applicable).

An investment technique used in PMS and AIF portfolios where derivatives (futures and options) are used on top of an existing portfolio to hedge risk or enhance returns. For example, a fund manager holding large cap stocks may use Nifty futures to reduce market risk during uncertain periods without selling the underlying holdings. Common in Category III AIFs and some PMS strategies.

A customised investment service where a SEBI-registered Portfolio Manager manages an individual's portfolio of stocks and/or bonds. Unlike mutual funds, in PMS the securities are held directly in the investor's own demat account. Minimum investment is ₹50 lakhs as per SEBI regulations. PMS fees include management fees and often a performance fee above a hurdle rate.

The degree to which two or more mutual funds in your portfolio hold the same stocks. High overlap means you are not truly diversified — you have concentrated exposure to the same companies through multiple funds. For example, most large cap funds hold HDFC Bank, Infosys, and Reliance. Holding 5 large cap funds may give you less diversification than holding just 1 with different fund categories.

A valuation metric that compares a company's share price to its earnings per share (EPS). P/E = Share Price ÷ EPS. A high P/E means investors are willing to pay a premium for expected future growth. The Nifty 50's P/E is often used to assess overall market valuation — historically, investing when Nifty P/E is below 20 has generated strong long-term returns.

The process of realigning the weightings of a portfolio's assets to maintain the original or desired level of asset allocation. Over time, some investments grow faster than others, causing the portfolio to drift from its target allocation. For example, if equity has grown from 60% to 75% of your portfolio, rebalancing means selling some equity and buying debt to restore the 60:40 balance.

A mutual fund variant where investment is made through a registered Mutual Fund Distributor (MFD). The AMC pays a distribution commission to the MFD, which is incorporated into the scheme's expense ratio. In return, investors receive advisory services, portfolio planning, and ongoing guidance. Regular plans have a higher expense ratio than direct plans but deliver better outcomes for most investors when combined with quality advice.

A measure of return that accounts for the level of risk taken to achieve it. Two funds may have the same return, but the one that achieved it with lower volatility has a better risk-adjusted return. The Sharpe Ratio is the most common risk-adjusted measure: (Fund Return – Risk-Free Rate) ÷ Standard Deviation. A higher Sharpe Ratio indicates better returns per unit of risk.

The benefit of investing a fixed amount regularly through SIP, which results in buying more units when prices are low and fewer units when prices are high. Over time, this lowers the average cost per unit below the average NAV over the same period. Rupee cost averaging removes the need to time the market and is one of the primary advantages of SIP investing.

The primary regulatory authority for securities markets in India, including mutual funds, PMS, AIF, stockbrokers, and listed companies. SEBI was established in 1992 and protects investor interests while promoting orderly market development. All mutual fund houses, PMS providers, and distributors must be registered with SEBI. SEBI regularly issues circulars that govern every aspect of fund management.

A mutual fund that concentrates its investments in a single sector (like banking, IT, pharma, or FMCG) or a theme (like consumption, infrastructure, or ESG). These funds carry concentrated risk — if the sector underperforms, there is no offset from other sectors. Suitable only for investors who have a strong conviction in a specific sector and understand the associated risk.

A new investment category introduced by SEBI in 2025, designed to bridge the gap between mutual funds and PMS. SIFs allow sophisticated strategies including long-short equity and derivatives at a minimum investment of ₹10 lakhs per investor. SIFs are managed by SEBI-registered AMCs and offer the pooled efficiency of a mutual fund with the investment flexibility of a PMS.

A method of investing a fixed, predetermined amount in a mutual fund scheme at regular intervals — typically monthly. SIP removes the need to time the market, builds financial discipline, and harnesses the power of Rupee Cost Averaging and compounding. You can start a SIP with as little as ₹500 per month. SIPs can be paused, stopped, or modified at any time without penalty.

An equity mutual fund that invests at least 65% in companies ranked 251st and beyond by market capitalisation. Small cap funds have the highest return potential over very long periods (10+ years) but also the highest volatility — they can fall 50–70% in bear markets. Suitable only for aggressive investors with a 7–10 year horizon and strong conviction to stay invested through severe downturns.

A statistical measure of how much a fund's returns vary from its average return over a period. A higher standard deviation indicates higher volatility — the fund's returns are more unpredictable. Small cap funds have high standard deviation; liquid funds have near-zero standard deviation. When comparing two funds with similar returns, the one with lower standard deviation is preferable.

A facility that automatically transfers a fixed amount from one mutual fund scheme to another at regular intervals. Typically used to move money from a liquid or debt fund to an equity fund gradually. STP combines the safety of debt (while waiting) with the benefit of Rupee Cost Averaging (when entering equity). It is the recommended way to deploy large lump sums into equity funds.

A facility that allows investors to withdraw a fixed amount from their mutual fund investment at regular intervals — monthly, quarterly, or annually. SWP is commonly used by retirees to generate a regular income stream from their accumulated corpus. It is more tax-efficient than the IDCW (dividend) option for most investors, as only the capital gains component of each withdrawal is taxed.

The total annual cost of owning a mutual fund, including fund management fees, administrative expenses, custodian charges, registrar fees, and distributor commissions. TER is expressed as a percentage and is deducted from the fund's daily NAV. SEBI mandates disclosure of TER for all schemes. It is effectively the same as the expense ratio and is the most comprehensive measure of a fund's cost.

The historical returns of a mutual fund calculated from a specific date in the past to today. For example, "3-year trailing return" means the annualised return from 3 years ago to today. Trailing returns are point-to-point and can be significantly affected by the start date. They should always be viewed alongside rolling returns and category averages for a complete picture of fund performance.

An individual with investable assets typically exceeding ₹25 crore or $30 million globally. UHNIs have access to the most sophisticated investment products including Category III AIFs, offshore structures, family offices, and private credit. Their wealth management needs are highly complex and require specialised, integrated advisory across investments, tax, estate planning, and philanthropy.

The denomination in which a mutual fund investment is held, similar to shares of a company. When you invest money in a mutual fund, you are allotted units at the prevailing NAV. Your total investment value = Number of Units × Current NAV. When you redeem, your units are cancelled and you receive the current NAV multiplied by the number of units redeemed.

An investment strategy of buying stocks or funds that appear to be trading below their intrinsic value. Value investors look for companies with strong fundamentals that the market has overlooked or temporarily mispriced. Value funds in India invest in companies with low P/E, low P/B, or high dividend yields. Value investing requires patience as undervalued stocks can remain undervalued for extended periods.

The degree to which the price or NAV of an investment fluctuates over time. High volatility means the value swings widely in both directions. Equity funds have high volatility; debt and liquid funds have low volatility. Volatility is not the same as risk — a volatile fund held for a long period tends to generate strong returns. The real risk is selling during a volatile period and locking in losses.

A comprehensive financial advisory service that addresses all aspects of an individual's financial life — investment management, tax planning, retirement planning, estate planning, insurance, and succession planning. Wealth management is typically offered to HNIs and UHNIs who require integrated, personalised guidance across their entire financial picture rather than individual product-based advice.

The most accurate way to calculate returns on investments with multiple cash flows at irregular intervals — like SIPs. Unlike CAGR (which works for single investments), XIRR accounts for the timing of each SIP instalment and each redemption. Always use XIRR when evaluating the actual return on your SIP portfolio. Most mutual fund platforms and Excel/Google Sheets provide XIRR calculation.

The income generated by a bond or debt instrument expressed as a percentage of its price. Yield and bond price have an inverse relationship — when interest rates rise, bond prices fall and yields rise; when rates fall, prices rise and yields fall. In debt mutual funds, the portfolio yield indicates the expected return from the bonds held. Higher yield generally means higher credit or duration risk.

The total return expected on a bond if it is held until it matures. For a debt mutual fund, YTM represents the weighted average yield of all the bonds in the portfolio, assuming they are all held to maturity. A higher YTM in a debt fund generally indicates higher credit risk or longer duration. YTM is a useful indicator of expected returns from a debt fund over the medium term.