Funds, ETFs & Index Investing

Active Investing

An approach that selects securities in an attempt to earn more than the index return.

Test: holdings deviate deliberately from the benchmark on the basis of judgement, and success is measured against the benchmark net of fees qualitative

Arbitrage Fund

An equity-taxed fund that holds offsetting cash and futures positions, earning the basis rather than market returns.

Test: every cash market holding is fully hedged by a short futures position in the same security qualitative

Funds, ETFs & Index Investing

Asset Management Company

The SEBI-registered entity that manages a mutual fund's schemes and is paid a fee for doing so.

Test: the entity holds a SEBI registration to manage mutual fund schemes on behalf of a trust, and is compensated within the expense ratio qualitative

Funds, ETFs & Index Investing

Assets Under Management

The total market value of the investments a fund or manager oversees.

AUM = Number of Units Outstanding x Net Asset Value per Unit ₹ crore

Funds, ETFs & Index Investing

Authorised Participant

An institution permitted to create and redeem ETF units directly with the fund, keeping the market price aligned with value.

Test: the entity has an agreement with the fund permitting creation and redemption in creation-unit blocks qualitative

Funds, ETFs & Index Investing

Balanced Advantage Fund

A hybrid fund that varies its equity allocation dynamically according to a stated model, usually valuation-based.

Test: net equity exposure moves within a wide band according to a disclosed model, with derivatives used to adjust it %

Funds, ETFs & Index Investing

Closet Indexing

An active fund that holds a portfolio close to its benchmark while charging active management fees.

Test: low active share and low tracking error combined with an expense ratio typical of active management qualitative

Funds, ETFs & Index Investing

Consolidated Account Statement

A single statement showing an investor's holdings across all mutual funds and demat accounts, linked by PAN.

Test: holdings across all fund houses and depositories are aggregated under one permanent account number qualitative

Funds, ETFs & Index Investing

Creation Unit

The large block of ETF units in which new units are created or existing ones redeemed with the fund.

Test: units are created or redeemed only in multiples of the specified block size, in exchange for the underlying basket or cash shares

Funds, ETFs & Index Investing

Cut-Off Time

The deadline by which an application and its funds must reach a fund house to receive a given day's NAV.

Test: both the application and the cleared funds are received before the stated cut-off for that scheme type qualitative

Funds, ETFs & Index Investing

Debt Fund

A mutual fund investing primarily in bonds, debentures and money-market instruments.

Test: the scheme invests predominantly in fixed-income securities, with returns driven by accrual and by price changes from yield movements qualitative

Funds, ETFs & Index Investing

Direct Plan

A version of a mutual fund scheme bought without a distributor, carrying no commission and therefore a lower expense ratio.

Test: the investment is made directly with the fund house or through an execution-only platform, with no distributor commission embedded %

Funds, ETFs & Index Investing

ELSS

An equity-linked savings scheme: a diversified equity fund with a three-year lock-in that qualifies for a tax deduction.

Test: minimum 80% in equity, three-year lock-in per instalment, and eligibility under Section 80C of the Income Tax Act qualitative

Funds, ETFs & Index Investing

Equal-Weighted Index

An index in which every constituent carries the same weight regardless of company size.

Weight of each Constituent = 1 / Number of Constituents %

Funds, ETFs & Index Investing

Equity Fund

A mutual fund investing at least 65% of its assets in Indian equity and equity-related instruments.

Test: minimum 65% allocation to domestic equity, which also determines the scheme's tax treatment qualitative

Funds, ETFs & Index Investing

ETF Premium/Discount

The gap between an ETF's market price and the value of its underlying holdings.

Premium or Discount % = (Market Price - iNAV) / iNAV x 100 %

Funds, ETFs & Index Investing

Exchange-Traded Fund

A fund whose units trade on a stock exchange throughout the day at market-determined prices.

Test: units are listed and traded on an exchange, with creation and redemption in large blocks by authorised participants qualitative

Funds, ETFs & Index Investing

Exit Load

A charge deducted from redemption proceeds when units are sold within a stated period of purchase.

Exit Load = Redemption Value x Load Percentage, applied if held less than the stated period %

Funds, ETFs & Index Investing

Expense Ratio

The annual cost of running a fund, expressed as a percentage of its assets and deducted from the NAV.

Expense Ratio = Total Annual Costs / Average Assets Under Management x 100 %

Funds, ETFs & Index Investing

Flexi-Cap Fund

An equity fund free to invest across large, mid and small-cap companies in any proportion.

Test: minimum 65% in equity with no mandated split across market capitalisation segments qualitative

Funds, ETFs & Index Investing

Fund Manager

The individual responsible for making investment decisions within a scheme's mandate.

Test: the named person holds discretion over security selection within the limits set by the scheme document and by regulation qualitative

Funds, ETFs & Index Investing

Fund of Funds

A mutual fund that invests in units of other funds rather than directly in securities.

Total Cost = Fund of Funds Expense Ratio + Weighted Average Expense Ratio of the Underlying Funds %

Funds, ETFs & Index Investing

Gold ETF

An exchange-traded fund holding physical gold, whose units track the domestic price of the metal.

Test: the fund holds physical gold of standard purity, and each unit represents a stated weight of it qualitative

Funds, ETFs & Index Investing

Growth Option

The plan option in which a fund retains all gains, so returns show up as a rising NAV rather than as payouts.

Test: no distributions are made; the entire return is reflected in the NAV qualitative