Funds, ETFs & Index Investing — 55 Terms Defined

Active Investing Funds, ETFs & Index Investing qualitative 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

Arbitrage Fund Funds, ETFs & Index Investing qualitative 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

Asset Management Company Funds, ETFs & Index Investing qualitative 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

Assets Under Management Funds, ETFs & Index Investing ₹ crore The total market value of the investments a fund or manager oversees. AUM = Number of Units Outstanding x Net Asset Value per Unit

Authorised Participant Funds, ETFs & Index Investing qualitative 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

Balanced Advantage Fund Funds, ETFs & Index Investing % 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

Closet Indexing Funds, ETFs & Index Investing qualitative 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

Consolidated Account Statement Funds, ETFs & Index Investing qualitative 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

Creation Unit Funds, ETFs & Index Investing shares 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

Cut-Off Time Funds, ETFs & Index Investing qualitative 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

Debt Fund Funds, ETFs & Index Investing qualitative 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

Direct Plan Funds, ETFs & Index Investing % 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

ELSS Funds, ETFs & Index Investing qualitative 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

Equal-Weighted Index Funds, ETFs & Index Investing % An index in which every constituent carries the same weight regardless of company size. Weight of each Constituent = 1 / Number of Constituents

Equity Fund Funds, ETFs & Index Investing qualitative 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

ETF Premium/Discount Funds, ETFs & Index Investing % The gap between an ETF's market price and the value of its underlying holdings. Premium or Discount % = (Market Price - iNAV) / iNAV x 100

Exchange-Traded Fund Funds, ETFs & Index Investing qualitative 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

Exit Load Funds, ETFs & Index Investing % 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

Expense Ratio Funds, ETFs & Index Investing % 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

Flexi-Cap Fund Funds, ETFs & Index Investing qualitative 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

Fund Manager Funds, ETFs & Index Investing qualitative 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

Fund of Funds Funds, ETFs & Index Investing % 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

Gold ETF Funds, ETFs & Index Investing qualitative 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

Growth Option Funds, ETFs & Index Investing qualitative 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