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Plain-language guides, a mutual fund glossary and a quick quiz. Everything a family needs to invest with confidence.
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Mutual fund glossary
52 terms explained in one or two lines.
- AMC
- Asset Management Company — the fund house that runs mutual fund schemes.
- AMFI
- Association of Mutual Funds in India, the industry body. Distributors must be registered with AMFI and hold an ARN.
- ARN
- AMFI Registration Number, the licence number every mutual fund distributor must display.
- AUM
- Assets Under Management — the total market value of money a scheme or fund house manages.
- Asset allocation
- How your money is split between equity, debt, gold and cash. It drives most of your long-term risk and return.
- Benchmark
- The index a fund is measured against, such as the Nifty 50 for many large cap funds.
- CAGR
- Compounded Annual Growth Rate — the steady yearly return that would turn the starting value into the ending value.
- Capital gains
- The profit when you sell units for more than you paid. Taxed as short-term or long-term depending on holding period and fund type.
- Category
- SEBI-defined fund type such as large cap, flexi cap, liquid or balanced advantage, which limits what a fund can buy.
- Compounding
- Earning returns on your earlier returns. The reason time matters more than timing.
- Cut-off time
- The time by which your purchase or redemption must reach the fund house to get that day's NAV.
- Debt fund
- A fund that invests in bonds, government securities and money-market instruments rather than shares.
- Direct plan
- A version of a scheme bought without a distributor, with a lower expense ratio.
- Drawdown
- The fall from a previous peak to a low. The worst fall a fund has had is its maximum drawdown.
- ELSS
- Equity Linked Savings Scheme — an equity fund with a 3-year lock-in that qualifies for Section 80C deduction under the old tax regime.
- Equity fund
- A fund that invests mainly in company shares. Higher long-term growth potential, with bigger short-term swings.
- Exit load
- A small fee charged if you redeem units before a set period, often 1% within one year for equity funds.
- Expense ratio (TER)
- The yearly fee a scheme charges, deducted daily from the NAV.
- Flexi cap fund
- An equity fund free to invest across large, mid and small companies in any proportion.
- Folio
- Your account number with a fund house. One folio can hold several schemes.
- Fund of funds (FoF)
- A scheme that invests in other mutual fund schemes, such as a gold FoF that invests in a gold ETF.
- Growth option
- Profits stay invested and increase the NAV, instead of being paid out. Best for long-term compounding.
- Hybrid fund
- A fund that mixes equity and debt, and sometimes gold, in one portfolio.
- IDCW
- Income Distribution cum Capital Withdrawal — formerly called the dividend option. Payouts come from your own investment's value.
- Index fund
- A fund that copies an index, such as the Nifty 50, at low cost instead of picking stocks.
- KYC
- Know Your Customer — one-time identity verification needed before investing in any mutual fund.
- Large cap fund
- Invests mainly in the 100 largest listed companies by market value.
- Liquid fund
- A debt fund investing in very short-term instruments, often used for emergency funds and parking money.
- Lock-in period
- A period during which units cannot be redeemed, such as 3 years for ELSS.
- Lumpsum
- Investing a single amount at once rather than in instalments.
- LTCG
- Long-term capital gain — profit on units held beyond the long-term period (more than 12 months for equity funds).
- Mid cap fund
- Invests mainly in companies ranked 101 to 250 by market value.
- NAV
- Net Asset Value — the price of one unit of a scheme, published once every business day.
- NFO
- New Fund Offer — the launch period of a new scheme. A low NAV at launch does not make a fund cheaper.
- Nominee
- The person who receives your units if you pass away. Every folio should have one.
- Overnight fund
- A debt fund lending only for one day at a time — among the lowest-risk mutual fund options.
- Rebalancing
- Bringing your equity–debt mix back to plan after markets move it.
- Redemption
- Selling units back to the fund house to receive money.
- Regular plan
- A version of a scheme bought through a distributor, who is paid from its expense ratio.
- Riskometer
- A dial on every scheme showing its risk level from Low to Very High.
- Rolling returns
- Returns measured over every possible period of a given length, giving a fairer picture than a single start date.
- SEBI
- Securities and Exchange Board of India, the regulator of mutual funds.
- Sharpe ratio
- Return earned per unit of risk taken. Higher is better when comparing similar funds.
- SIP
- Systematic Investment Plan — investing a fixed amount at regular intervals.
- Small cap fund
- Invests mainly in companies ranked below 250 by market value. Highest growth potential and highest volatility among equity categories.
- Standard deviation
- A measure of how much a fund's returns swing around their average.
- Step-up SIP
- A SIP that increases by a fixed amount or percentage every year.
- STCG
- Short-term capital gain — profit on units sold within the short-term period.
- STP
- Systematic Transfer Plan — moving a fixed amount from one fund to another at regular intervals.
- SWP
- Systematic Withdrawal Plan — withdrawing a fixed amount from a fund at regular intervals, often for retirement income.
- Units
- What you own in a mutual fund. Your investment value is units multiplied by the NAV.
- XIRR
- Annualised return that accounts for money invested at different dates, such as SIP instalments.
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Frequently asked questions
Are mutual funds safe?
Your money is held by the fund's trustee and custodian, separate from the fund house's own money, and SEBI regulates every scheme. Mutual funds are not "safe" in the sense of guaranteed returns: equity funds can fall sharply in the short term. Matching the fund type to how soon you need the money is what keeps it safe for you.
What is the minimum amount to start a SIP?
Many schemes accept SIPs from ₹500 a month, and some from ₹100. Starting small and raising the SIP every year matters more than the first amount.
Can I stop or pause my SIP?
Yes. You can stop a SIP at any time without penalty, and many fund houses allow a pause of a few months. Units already bought stay invested. Exit loads may apply only if you redeem units within a short period, usually one year for equity funds.
How long should I stay invested in an equity fund?
Ideally at least 5 to 7 years. Over short periods equity can fall; over longer periods the chance of a loss has historically been much lower. Money needed within 3 years is better kept in debt or liquid funds.
What does a Mutual Fund Distributor do, and how are you paid?
We help you choose schemes suited to your goals, complete KYC and paperwork, review your portfolio every year and support you through market ups and downs. We are paid a commission by the fund house through regular plans; you pay no separate fee to us. We are not SEBI-registered investment advisers.
What do I need to start investing?
A PAN card, Aadhaar or another address proof, a bank account and a mobile number and email linked to them. KYC is done once and works across all fund houses. We complete it with you online in about 15 minutes.
How are mutual fund gains taxed?
For equity-oriented funds, gains on units held over 12 months are taxed at 12.5% on gains above ₹1.25 lakh a year, and at 20% if held for 12 months or less. Gains on debt funds bought after 1 April 2023 are taxed at your slab rate. See our plain-language tax guide for details.
Can I withdraw my money any time?
Open-ended funds can be redeemed on any business day, and money usually reaches your bank within 1 to 3 working days. ELSS tax-saver funds have a 3-year lock-in, and some funds charge an exit load for early redemption.