- Large-Cap Funds:
Funds that invest in companies with a large market capitalisation, typically well-established and financially stable organisations.
- Mid-Cap Funds:
Funds that invest in companies with medium market capitalisation. These companies have the potential for growth but come with slightly higher volatility compared to large-cap funds.
- Small-Cap Funds:
Funds that invest in companies with small market capitalisation. These companies carry higher risk but can offer higher growth potential.
- Flexi-Cap Funds:
Funds that invest across companies of all sizes (large-cap, mid-cap, and small-cap) without restrictions, allowing fund managers to adjust the portfolio as per market conditions.
- Sectoral Funds:
Funds that invest in specific sectors like IT, healthcare, or energy. These funds are exposed to risks associated with the performance of a particular sector.
- Thematic Funds:
Funds that invest based on a specific theme that spans multiple sectors, such as infrastructure or ESG (Environmental, Social, and Governance) themes.
- Equity-Linked Savings Scheme (ELSS):
A tax-saving mutual fund under Section 80C of the Income Tax Act with a mandatory lock-in period of three years. ELSS invests primarily in equities.
Net Asset Value (NAV)
The per-unit value of an equity mutual fund is calculated by dividing the total value of the fund’s assets minus liabilities by the number of units outstanding. NAV changes daily based on market performance.
Expense Ratio
The annual fee charged by mutual funds for managing investments. It is expressed as a percentage of the fund’s average assets under management (AUM). A lower expense ratio indicates lower costs for investors.
Lock-In Period
A specified period during which an investor cannot redeem or withdraw their investments. ELSS funds, for example, have a lock-in period of three years.
Portfolio Diversification
The practice of investing in a wide range of stocks across sectors and market capitalisations to reduce risk. Equity mutual funds achieve diversification by spreading investments across different companies and industries.
Systematic Investment Plan (SIP)
An investment option in mutual funds where investors can contribute a fixed amount at regular intervals, such as monthly. SIPs help in disciplined investing and reduce the impact of market volatility.
Benchmark Index
A standard used to measure the performance of an equity mutual fund. Examples include NIFTY 50 and BSE Sensex. The fund’s performance is evaluated against the chosen benchmark.
Alpha
A measure of a fund’s performance compared to its benchmark. A positive alpha indicates the fund outperformed the benchmark, while a negative alpha indicates underperformance.
Beta
A measure of the volatility of a fund compared to the overall market. A beta of 1 indicates the fund’s performance moves in line with the market, while a beta greater than 1 signifies higher volatility.
Dividend Option
A payout option in equity funds where the fund distributes profits to investors as dividends. Dividends are declared based on the fund’s performance.
Growth Option
A payout option where the profits are reinvested into the fund, leading to capital appreciation over time. No dividends are paid under this option.
Risk-Return Tradeoff
The relationship between the level of risk an investor takes and the returns they may achieve. Equity funds generally have higher risk but also the potential for higher returns over the long term.
Exit Load
A fee charged when investors redeem their mutual fund units within a specified time. The exit load is designed to discourage early withdrawals.
Taxation of Equity Funds
- Short-Term Capital Gains (STCG): Gains on investments held for less than one year are taxed at 15%.
- Long-Term Capital Gains (LTCG): Gains on investments held for more than one year are taxed at 10% for amounts exceeding ₹1 lakh per year.This glossary provides detailed definitions and explanations of terms related to equity mutual funds, helping investors understand the key concepts and mechanisms involved.
