Glossary

Advisor

The organization employed by a mutual fund to give professional advice on the fund's investments and to supervise the management of its assets.

Asked or Offering Price

The price at which a mutual fund's shares can be purchased. The asked or offering price means the current net asset value (NAV) per share plus sales charge, if any. For a no-load fund, the asked price is the same as the NAV.

Asset Allocation Fund

A fund that spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, gold bullion and real estate stocks. This gives small investors far more diversification than they could get allocating money on their own. Some of these funds keep the proportions allocated between different sectors relatively constant, while others alter the mix as market conditions change.

Automatic Reinvestment

A service offered by most mutual funds whereby income dividends and capital gain distributions are automatically invested into the fund by buying additional shares and thus building up holdings through the effects of compounding.

Balanced Fund

A mutual fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks and 40% common stocks.

Bid or Sell Price

The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or redemption price means the current net asset value per share, less any redemption fee or back-end load.

Bond Fund

A mutual fund whose portfolio consists primarily of corporate, municipal or U.S. Government bonds. These funds generally emphasize income rather than growth.

Bond Rating

System of evaluating the probability of whether a bond issuer will default. Standard and Poor's Corp. and Moody's Investors Services, among other firms, analyze the financial stability of both corporate and government bond issuers. Ratings range from AAA or Aaa (extremely unlikely to default) to D (currently in default). Bonds rated BBB or below by S&P or Baa or below by Moody's are not considered to be of investment grade. Mutual funds generally restrict their bond purchases to issues of certain quality ratings, which are specified in their prospectuses.

Capital Appreciation Fund

A mutual fund that seeks maximum capital appreciation through the use of investment techniques involving greater than ordinary risk, such as borrowing money in order to provide leverage, short-selling and high portfolio turnover.

Capital Gains Distributions

Payments (usually annually) to mutual fund shareholders of gains realized on the sale of portfolio securities.

Capital Growth

A rise in market value of a mutual fund's securities, reflected in its net asset value per share. This is a specific long-term objective of many mutual funds.

Certificate of Deposit

Interest-bearing, short-term debt instrument issued by banks and thrifts.

Closed-End Investment Company

An investment company that offers a limited number of shares. They are traded in the securities markets, usually through brokers. Price is determined by supply and demand. Unlike open-end investment companies (mutual funds), closed-end funds do not redeem their shares.

Commercial Paper

Short-term, unsecured promissory notes with maturities no longer than 270 days. They are issued by corporations, in denominations starting at $10,000, to fund short-term credit needs.

Common Stock Fund

An open-end investment company whose holdings consist mainly of common stocks and usually emphasize growth.

Confirm Date

The date the fund processed your transaction, typically the same day or the day after your trade date.

Contingent Deferred Sales Charge (CDSC)

A fee (or back-end load) imposed by certain funds on shares redeemed within a specific period following their purchase. These charges are usually assessed on a sliding scale, such as four percent to one percent of the amounts redeemed, with the fee reduced each year the units are held.

Custodian

The bank or trust company that maintains a mutual fund's assets, including its portfolio of securities or some record of them. Provides safekeeping of securities but has no role in portfolio management.

Daily Dividend Fund

This term applies to funds that declare their income dividends on a daily basis and reinvest or distribute monthly.

Deferred Compensation Plan

A tax-sheltered investment plan to which employees of state and local governments can defer a percentage of their salary.

Distributor

An individual or a corporation serving as principal underwriter of a mutual fund's shares, buying shares directly from the fund, and reselling them to other investors.

Diversification

The policy of spreading investments among a range of different securities to reduce the risks inherent in investing.

Rupee-Cost Averaging

The technique of investing a fixed sum at regular intervals regardless of stock market movements. This reduces average share costs to the investor, who acquires more shares in periods of lower securities prices and fewer shares in periods of high prices. In this way, investing risk is spread over time.

Exchange Privilege (Or switching privilege)

The right to transfer investments from one fund into another, generally within the same fund group, at nominal cost.

Ex-Dividend Date

The date on which a fund's Net Asset Value (NAV) will fall by an amount equal to the dividend and/or capital gains distribution (although market movements may alter the fund's closing NAV somewhat). Most publications which list closing NAVs place an "X" after a fund’ name on its ex-dividend date.

Expense Ratio

The ratio of total expenses to net assets of the fund. Expenses include management fees, 12(b)1 charges, if any, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses.

Fannie Mae (Federal Mortgage Association)

An agency established by the federal government, but owned by private stockholders, which issues mortgage-backed certificates in $25,000 denominations. Timely payment of both interest and principal are insured. A growing number of mutual funds emphasize investments in these and other mortgage-backed securities.

Fiscal Year

An accounting period consisting of 12 consecutive months.

Global Fund

A fund that invests in both Indian. and foreign securities.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential.

Income Dividend

Payment of interest and dividends earned on the fund's portfolio securities after operating expenses are deducted.

Income Fund

A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest.

Index Fund

A mutual fund that seeks to mirror general stock-market performance by matching its portfolio to a broad-based index, most often the Standard & Poor's 500-stock index.

International Fund

A fund that invests in securities traded in markets outside India.

Investment Company

A corporation, partnership or trust that invests the pooled monies of many investors. It provides greater professional management and diversification of investments than most investors can obtain independently. Mutual funds, or "open-end" investment companies, are the most popular form of investment company.

Investment Objective

The financial goal (long-term growth, current income, etc.) that an investor or a mutual fund pursues.

Junk Bond

A speculative bond rated BB or below by Standard & Poor's Corp. and Ba or below by Moody's Investor Service. "Junk bonds" are generally issued by corporations of questionable financial strength or without proven track records. They tend to be more volatile and higher yielding than bonds with superior quality ratings. "Junk bond funds" emphasize diversified investments in these low-rated, high-yielding debt issues.

Load

A sales charge or commission assessed by certain mutual funds ("load funds,") to cover their selling costs. The commission is generally stated as a portion of the fund's offering price, usually on a sliding scale from one to 8.5%.

Load Fund

A mutual fund that levies a sales charge up to 8.5%, which is included in the offering price of its shares, and is sold by a broker or salesman. A front-end load is the fee charged when buying into a fund; a back-end load is the fee charged when getting out of a fund.

Low-Load Fund

A mutual fund that charges a small sales commission, usually 3.5% or less, for the purchase of its shares.

Management Fee

The amount a mutual fund pays to its investment adviser for services rendered, including management of the fund's portfolio. In general, this fee ranges from .5% to 1% of the fund's asset value.

Money Market Fund

A mutual fund that aims to pay money market interest rates. This is accomplished by investing in safe, highly liquid securities, including bank certificates of deposit, commercial paper, government securities and repurchase agreements. Money Market funds make these high interest securities available to the average investor seeking immediate income and high investment safety.

Mortgage-Backed Securities

Certificates backed by pooled mortgages (e.g., Freddie Mac or Ginnie Mae). Issuing agencies buy mortgages from lending institutions and repackage them as securities that they sell to investors. They are generally issued in denominations of $25,000 or above. Yields, which stem from interest and principal on underlying mortgages, are generally higher than those of Treasury bonds that provide comparable liquidity and safety. A growing number of income mutual funds concentrate their holdings in these securities.

Municipal Bond Fund

A mutual fund that invests in a broad range of short, intermediate or long-term tax-exempt bonds issued by states, cities and other local governments. The interest obtained from these bonds is passed through to shareholders free of tax. The objective of these funds is current tax-free income.

Mutual Fund

An open-end investment company that buys back or redeems its shares at current net asset value. Most mutual funds continuously offer new shares to investors.

Net Asset Value Per Share

The current market worth of a mutual fund share. Calculated daily by taking the funds total assets securities, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of shares outstanding.

No-Load Fund

A commission-free mutual fund that sells its shares at net asset value, either directly to the public or through an affiliated distributor, without the addition of a sales charge.

Option Income Fund

A fund that invests primarily in dividend-paying common stocks on which call options are traded on national securities exchanges. These funds seek high current return consisting of dividends, premiums from selling options, net short-term gains (including those from the exercising of options) and any profits from closing purchase transactions.

Payable Date

The date on which distributions are paid to shareholders who do not want to reinvest them. This date can be anywhere from one week to one month after the Record Date.

Payroll Deduction Plan

An arrangement between an employer and a mutual fund, authorized by the employee, through which a specified sum is deducted from an employee's salary to buy shares in the fund.

Portfolio Turnover Rate

The rate at which the fund's portfolio securities are changed each year. If a fund's assets total $100 million and the fund bought and sold $100 million worth of securities that year, its portfolio turnover rate would be 100%. Aggressively managed funds generally have higher portfolio turnover rates than do conservative funds that invest for the long term. High portfolio turnover rates generally add to the expenses of a fund.

Prospectus

An official document that each investment company must publish, describing the mutual fund and offering its shares for sale. It contains information required by the Securities and Exchange Commission.

Record Date

The date the fund determines who its shareholders are; "shareholders of record" who will receive the fund's income dividend and/or net capital gains distribution. Frequently the business day immediately prior to the Ex-Dividend Date.

Redemption Fee

A fee charged by a limited number of funds for redeeming, or buying back, fund shares.

Redemption Price

The price at which a mutual fund's shares are redeemed (bought back) by the less expensive fund. The redemption price is usually equal to the current net asset value per share.

Regional Fund

A mutual fund that concentrates its investments within a specific geographic area, usually the fund's local region. The objective is to take advantage of regional growth potential before the national investment community does.

Reinvestment Date (Payable Date)

The date on which a share's dividend and/or capital gains will be reinvested (if requested) in additional fund shares.

Reinvestment Privilege

A service that most mutual funds offer whereby a shareholder's income dividends and capital gains distributions are automatically reinvested in additional shares.

Sector Fund

A fund that operates several specialized industry sector portfolios under one umbrella. Transfers between the various portfolios can usually be executed by telephone at little or no cost.

Series Fund

A mutual fund whose prospectus allows for more than one portfolio. Portfolios may be specialized (Sector Fund) or broad (growth stock, along with a money market portfolio). Management can create additional portfolios as it sees fit.

Short Selling

The sale of a security which is not owned by the seller. The "short seller" borrows stock for delivery to the buyer, and must eventually purchase the security for return to the lender.

Short-Term Municipal Bond Fund

A fund that invests in municipal bonds with maturities not exceeding two years. See Municipal Bond Fund.

Simplified Employee Pension

An alternative to a Keogh plan that allows employers who have not established qualified retirement plans to contribute to their employee’s Individual Retirement Accounts.

Specialty Fund

A mutual fund specializing in the securities of a particular industry or group of industries or special types of securities.

Systematic Withdrawal Plans

Many mutual funds offer withdrawal programs whereby shareholders receive payments from their investments. These payments are usually drawn from the fund’s dividend income and capital gain distributions, if any, and from principal only when necessary.

Underwriter

The organization that acts as the distributor of a mutual fund's shares to broker/dealers and the public.

Variable Annuity

A type of insurance contract that guarantees future payments to the holder, or annuitant, usually at retirement. The annuity's value varies with that of the underlying portfolio securities, which may include mutual fund shares. All monies held in the annuity accumulate tax-deferred.

Voluntary Plan

A flexible plan for capital accumulation, involving no specified time frame or total sum to be invested.

Yield

Income or return received from an investment, usually expressed as a percentage of market price, over a designated period. For a mutual fund, yield is interest or dividend before any gain or loss in the price per share.

Zero Coupon Bond

Bond sold at a fraction of its face value. It appreciates gradually, but no periodic interest payments are made. Earnings accumulate until maturity, when the bond is redeemable at full face value. Nonetheless, interest is taxable as it accrues. As a result, zero coupon bonds are often used for IRAs, Keoghs and other tax-deferred retirement plans.

LIST OF BOOKS:

Investment Policy and Performance of Mutual Funds

M.Jayadev

Mutual Funds Management and Working

Lalitb K. Bansal

Mutual Funds a Comprehensive Approach

Dr. Peeush Rajan Agrawal

Working at Mutual Fund Organization in India

P. Mohan Rao

How Mutual Funds Work

A. J. Friedman & Russ Wiles

The Future of Fund Management in India

Tushar Waghmare

Mutual Funds in India

S. Krishnamurti