Alpha: Alpha measures the difference between a fund's actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed, given the expectations established by the fund's beta. Some investors see alpha as a measurement of the value added or subtracted by a fund's manager. There are limitations to alpha's ability to accurately depict a manager's added or subtracted value. In some cases, a negative alpha can result from the expenses that are present in the fund figures but are not present in the figures of the comparison index. Alpha is dependent on the accuracy of beta: If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance. Of course, the value of beta is dependent on another statistic, known as R-squared.

Annual Fund Operating Expenses: The expenses incurred, during a particular year, by Asset Management Company for managing the funds.

Asset Allocation: The process of diversifying the investments in different kinds of assets such as stocks, bonds, real estate, cash in order to optimize risk.

Asset Management Company (AMC): A Company registered with SEBI, which takes investment/divestment decisions for the mutual fund, and manages the assets of the mutual fund.

Automatic Reinvestment: An investment option for mutual fund unit holders in which the proceeds from either the fund's dividends or capital gains, or both, are automatically used to buy more units of the funds.

Balanced Fund: Balanced fund include both equity and debt schemes, with 50-75 per cent in equity and the rest in debt.

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 is the current net asset value per share, less any redemption fee or back-end load.

Bond: A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.

Bond Rating: A 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 Gain: Profit that results when the price of a secuirty held by a mutual fund rises above its purchase price. If the security is sold, then the capital gain is realized; if the security is still being held, the gain is unrealized. If the security has been held for more than a year, the gain is long-term; otherwise it is shorter-term. A capital loss occurs when the price of a security falls below its purchase price.

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.

Closed-End Schemes: A mutual fund scheme in which the investors commit their money for a particular period.

Conversion Privilege: Same as Exchange Privilege.

Coupon: The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually.

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

Deferred Sales Charge � Schedule of Decline: The actual percent charged, or amount you will pay during the corresponding time periods. This amount or percentage that your pay goes down as time goes on. (the longer you hold the fund the lower the sales charge).

Diversification: A basic risk management tool in which an investor maintains a mix of common stocks, bonds money markets and other investments to reduce potential risk.

Dividend Stripping: When an investor invests with the idea of exiting from the fund immediately after the dividend is paid.

Entry Load: Mutual Funds charge investors an entry load of upto 2.25% to compensate for distribution costs. It is charged at the time an investor purchases the units of a scheme.

Equity-Linked Savings Schemes (ELSS): The major portion of investment in ELSS is in equity. The dividends in this scheme are tax-free.

Exchange Traded Fund (ETF): Exchange Traded Fund is a security that tracks an index, a commodity or a sector like an index fund or a sectoral fund but trades like a stock on the exchange.

Expense Ratio: A mutual fund's operating expenses, expressed as a percentage of its average net assets. Mutual funds with lower expense ratios are able to distribute a higher percentage of their total returns to their shareholders.

Floating Rate Debt: A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates).

Fund Family: A mutual fund company offering many funds for various objectives.

Gilt Fund: Gilts are securities issued by the central government and are said to carry sovereign or minimal risk.

Growth Plan: A mutual fund whose primary investment objective is long-term growth of capital.

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Hedging: A strategy designed to reduce investment risk. Hedging techniques uses call options, put options, short selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk of loss.

Holdings: This is a fund's most recently reported top securities (excluding cash and cash equivalents for all but short-term bond funds). The securities are ranked by the percentage of the portfolio's net assets they occupy. With this information, investors can more clearly identify what drives the fund's performance.

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.

Initial Purchase: The smallest investment amount accepted for establishing a new account. The minimum initial purchase notifies the investor of monetary restrictions for becoming a shareholder. Generally speaking, institutional funds have the highest minimum initial purchase amounts. For those investors with only a small amount to invest, checking the fund's minimum initial purchase should be one of the first criteria you use when selecting an appropriate mutual fund.

Interest Rate Sensitivity: Interest-rate sensitivity, measured by the average effective duration � the longer a fund's duration, the more sensitive the fund is to shifts in interest rates. The relationship between funds with different durations is straightforward: A fund with a duration of 10 years is twice as volatile as a fund with a five-year duration. Duration also gives an indication of how a fund's NAV will change as interest rates change. A fund with a five-year duration would be expected to lose 5% from its NAV if interest rates rose by one percentage point or gain 5% if interest rates fell by one percentage point.

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

Jobbers: Members of a stock exchange who stand ready to buy and sell shares in which they specialize are called jobbers.

Level Load: Commission (load) that does not vary depending on how long the investor held the investment.

Load: Commissions an investor pays to a mutual fund on entry (buying units) and exit (selling the units)

Long-Term Bond Fund: A mutual fund that invests in bonds that mature in more than 10 years.

Management Fee: The amount a mutual fund pays to its investment advisor 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.

Mutual Fund: A Mutual Fund (MF) is a form of trust that pools the funds of a whole lot of investors to make more money by investing in an array of financial instruments.

Net Asset Value Per Unit: 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 units outstanding.

No Load Fund: Mutual fund that does not impose any sales charge or commission for buying and selling the units.

Open-Ended Schemes: Mutual fund schemes that continuously offer new units to the public are called open-ended schemes. They offer units for sale without specifying any duration for redemption.

Option: The right to buy or sell a security after a particular period and at a particular price and quantity. There are generally two kind of options, call option and a put option. A call option gives the right to the buyer of the option to force the writer of the option to sell a particular stock at a prefixed price within a particular period. A put option gives the buyer a right to force the writer to buy a particular stock at a prefixed price.

Portfolio Manager: A professional hired by the mutual fund advisor to make investment decisions concerning the purchase and sale of securities for the mutual fund portfolio in accordance with the fund's objectives.

Premium: The amount by which a bond or stock sells above its par value.

Prime Rate: Interest rate that commercial banks charge their credit worthy borrowers such as large corporations.

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 Board of India including fees and expenses of the fund, past performance and how to buy and redeem shares.

R-Squared: R-squared ranges from 0 to 100 and reflects the percentage of a fund's movements that are explained by movements in its benchmark index. An R-squared of 100 means that all movements of a fund are completely explained by movements in the index. Thus, index funds that invest only in S&P 500 stocks will have an R-squared very close to 100. Conversely, a low R-squared indicates that very few of the fund's movements are explained by movements in its benchmark index. An R-squared measure of 35, for example, means that only 35% of the fund's movements can be explained by movements in its benchmark index. Therefore, R-squared can be used to ascertain the significance of a particular beta or alpha. Generally, a higher R-squared will indicate a more useful beta figure. If the R-squared is lower, then the beta is less relevant to the fund's performance.

Redemption Fee: Same as Back End Load.

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.

Risk: The measure of an investor's ability to withstand volatility in the markets. Investors with a near-term focus are likely to be more conservative than those with a long-term viewpoint who can benefit from the market's fluctuations by taking advantage of compounding and historical growth of the markets.

Rupee-Cost Averaging: A system of investing in which individual re-invests money into the same mutual fund on a regular basis, usually monthly.

Sector Fund: An equity scheme that invests in shares of companies operating in specific sector or industries is called a sector fund. For instance, a pharma fund would invest only in pharmaceutical companies.

Sharpe Ratio: The Sharpe ratio, provided by Lipper, is based on a risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated using standard deviation and excess return to determine reward per unit of risk. First, the average monthly return of the 90-day Treasury bill (over a 36-month period) is subtracted from the fund's average monthly return. The difference in total return represents the fund's excess return beyond that of the 90-day Treasury bill, a risk-free investment. An arithmetic annualized excess return is then calculated by multiplying this monthly return by 12. To show a relationship between excess return and risk, this number is then divided by the standard deviation of the fund's annualized excess returns. The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance.

Standard Deviation: Standard deviation is a statistical measure of the range of a fund's performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility. The standard deviation figure provided here is an annualized statistic based on 36 monthly returns. By definition, approximately 68% of the time, the total returns of any given fund are expected to differ from its mean total return by no more than plus or minus the standard deviation figure. Ninety-five percent of the time, a fund's total returns should be within a range of plus or minus two times the standard deviation from its mean. These ranges assume that a fund's returns fall in a typical bell-shaped distribution. In any case, the greater the standard deviation, the greater the fund's volatility.

Subsequent Purchase: This indicates the smallest permissible additional purchase a fund will accept in an existing account.

Systematic Investment Plan (SIP): Systematic Investment Plan popularly known as SIP is a method of investing a fixed sum regularly in a mutual fund scheme. It is very similar to regular saving schemes like a recurring deposit. SIP allows one to buy units on a given date at regular interval, so that one can implement a saving plan for themselves. A SIP is generally preferred for an equity scheme and can be started with as small as Rs 500 per month.

Transfer Agent: The organization, usually a bank, that mutual funds employ to prepare and maintain records relating to shareholder accounts. Some mutual fund groups operate in-house transfer agencies.

Treynor Ratio: A gauge of risk-adjusted performance calculated by dividing the excess return of a portfolio above the risk-free rate by its beta. Higher values are desirable and indicate greater return per unit of risk.

Unit Holder: An investor who invests money in mutual funds.

Venture Capital Fund: A limited company formed to provide venture or risk capital to new industries.

Withdrawal Plan: The facility to periodically redeem mutual fund and have proceeds mailed directly to the investor.

Yield Curve: A graphic line chart that shows interest rates at a specific point for all securities having equal risk, but different maturity dates. For bonds, it typically compares the 2 or 5 year treasury with the 30 year.