Mutual fund glossary

Mutual fund paperwork uses a lot of short forms. Each term below is explained the way I would explain it across the table, with a link to a calculator or guide where one helps.

Who's who

AMFI

The Association of Mutual Funds in India, the industry body of Indian mutual fund houses. It registers mutual fund distributors, issues their ARN and publishes NAVs and investor-education material.

SEBI

The Securities and Exchange Board of India, the regulator for mutual funds. It sets the rules on scheme categories, costs, disclosures and how funds and intermediaries must behave.

AMC (asset management company)

The company that runs a mutual fund's schemes, also called the fund house. It employs the fund managers and is paid through the scheme's expense ratio.

Mutual fund distributor (MFD)

An AMFI-registered intermediary who helps investors choose and buy mutual fund schemes and services their investments. A distributor is paid a commission by the fund house through the regular plan, and is not a SEBI-registered investment adviser.

Registered investment adviser (RIA)

A professional registered with SEBI to give investment advice for a fee paid by the client. RIAs usually recommend direct plans, since they do not take commission.

ARN (AMFI Registration Number)

The unique registration number every mutual fund distributor must hold, shown as ARN followed by digits. Anyone can check an ARN on the AMFI website. See how to verify a distributor's ARN.

EUIN (Employee Unique Identification Number)

A number AMFI gives to each individual who sells or services mutual funds, including individual distributors. It is quoted on transactions so it is clear who handled the sale.

Buying, holding and selling

NAV (net asset value)

The price of one unit of a mutual fund scheme, worked out at the end of each business day from the value of everything the scheme holds, minus its costs, divided by the number of units.

Folio

Your account number with a fund house. All your purchases in that fund house can sit in one folio.

KYC (Know Your Customer)

The one-time identity and address check needed before you can invest, done with your PAN and Aadhaar. See mutual fund KYC documents.

CAS (Consolidated Account Statement)

A single statement of all your mutual fund holdings across fund houses, sent by email every month in which you transact and at least twice a year otherwise. It also shows the commission paid to your distributor.

Nominee

The person you name to receive your units if you die. Adding a nominee to every folio saves your family a long claims process.

NFO (new fund offer)

The first offer of units in a newly launched scheme. A new fund has no track record, so an NFO is not automatically a bargain.

Lumpsum

A single, one-time investment, as opposed to monthly instalments. See the lumpsum calculator.

SIP (systematic investment plan)

A fixed amount invested automatically every month (or week or quarter) into a scheme. See the SIP calculator.

Step-up SIP

A SIP whose amount rises by a fixed percentage every year, usually in line with salary increases. Also called a top-up SIP. See the step-up SIP calculator.

STP (systematic transfer plan)

A fixed amount moved at regular intervals from one scheme of a fund house to another, typically from a liquid fund into an equity fund to spread out a lumpsum.

SWP (systematic withdrawal plan)

A fixed amount paid out to you at regular intervals from your investment, often used as a monthly income in retirement. See the SWP calculator.

Exit load

A charge, usually a small percentage, deducted if you redeem units before a set period, commonly within a year for many equity funds. It is stated in the scheme document.

Redemption

Selling your mutual fund units back to the fund house. Money usually reaches your bank in one to three working days, depending on the fund type.

Plans and fund types

Direct plan

The version of a scheme bought directly from the fund house, with no distributor commission and so a lower expense ratio.

Regular plan

The version of the same scheme bought through a distributor. Its expense ratio includes the distributor's commission. See direct vs regular plans.

Equity fund

A scheme that invests mainly in shares. It has the highest long-term growth potential among common fund types and the largest ups and downs.

Debt fund

A scheme that invests in bonds, government securities and money-market instruments. Usually steadier than equity funds, though not risk-free.

Hybrid fund

A scheme that holds a mix of equity and debt, in proportions set by its category, such as balanced advantage or conservative hybrid funds.

Liquid fund

A debt fund that invests in very short-term instruments and is commonly used to park money for days or months, including an emergency fund.

Index fund

A scheme that copies an index such as the Nifty 50 instead of picking stocks, usually at a low cost.

ELSS (equity-linked savings scheme)

An equity fund with a three-year lock-in that qualifies for a tax deduction under the old tax regime. See the ELSS guide.

Riskometer

A label that SEBI requires on every scheme, showing its risk on six levels from Low to Very High.

Costs, returns and tax

Expense ratio (TER)

The yearly cost of running a scheme, shown as a percentage of your investment and deducted daily from the NAV. Direct plans have a lower expense ratio than regular plans of the same scheme.

Benchmark

The index a scheme's performance is measured against, named in its documents. Comparing a fund with its benchmark tells you more than comparing it with another fund.

Absolute return

The total percentage gain or loss over the whole period, with no adjustment for how long it took.

CAGR (compound annual growth rate)

The steady yearly rate that turns a starting value into an ending value over a period. Right for a single one-time investment. See the CAGR calculator.

XIRR

The yearly return on money invested or withdrawn on different dates, such as a SIP. Your CAS and most apps show it.

Rupee cost averaging

The effect of investing a fixed amount regularly: you buy more units when prices are low and fewer when they are high.

LTCG and STCG

Long-term and short-term capital gains. For equity funds, gains on units held over 12 months are long term (taxed at 12.5% above ₹1.25 lakh a year) and gains on units held 12 months or less are short term (taxed at 20%). See the mutual fund tax calculator.

Questions people ask

What is the difference between NAV and the value of my investment?

NAV is the price of one unit. The value of your investment is the NAV multiplied by the number of units you hold.

Is a mutual fund distributor the same as a financial adviser?

No. A distributor is registered with AMFI and is paid commission through regular plans. A SEBI-registered investment adviser charges you a fee for advice.

What is the difference between CAGR and XIRR?

CAGR measures one investment with one start and one end value. XIRR measures money that goes in or out on different dates, such as a SIP, so it is the right measure for SIPs.