Sources of finance

Debt finance - money provided by an external lender, such as a bank, building society or credit union.

Equity finance - money sourced internally by the business.Once you know how much finance you need, it's important to know your options. Knowing who to approach for finance can help you find the best finance option for your business. It can also give you several alternatives if traditional finance options fail. See the list below for some common sources of debt and equity finance:

Debt Finance

Financial institutionsFinancial institutions such as banks, building societies and credit unions offer a range of finance products with both short and long-term finance solutions. Some products include business loans, lines of credit, overdraft facilities, invoice financing, equipment leases and asset financing.

RetailersIf you require finance to purchase goods such as furniture, technology or equipment, many stores offer store credit through a finance company. Generally, this is a higher interest option and is suited to businesses that can pay the loan off quickly within the interest-free period.

SuppliersMost suppliers offer trade credit that allow businesses to delay payment for goods. The terms often vary and trade credit may only be offered to businesses that have an established relationship with the supplier.

Finance companiesMost finance companies offer finance products via a retailer. Finance companies must be registered, so before you obtain finance check the Professional registers    on the Australian Securities and Investments Commission (ASIC) website.

Factor companiesFactor companies offer a form of finance where they purchase a business' outstanding invoices at a discount. The factor company then chases up the debtors. While factoring is a way to get quick access to cash, it can be quite expensive compared to traditional financing options.

Family or friendsIf a friend or relative offers you a loan that is expected to be repaid, it's called a debt finance arrangement. If you decide on this option, carefully consider how this arrangement could affect your relationship.

Equity Finance

Self fundingOften called 'bootstrapping', self funding is often the first step in seeking finance and involves funding purely through personal finances and revenue from the business. Investors and lenders will both expect some amount of self funding before they agree to offer you finance.

Venture capitalistsVenture capitalists are generally large corporations that invest large sums in start-up businesses with the potential for high growth and large profits. They typically require a large controlling share of the business and often provide management or industry expertise.

Stock market

Also known as an Initial Public Offering (IPO), floating on the stock market involves publicly offering shares to raise capital. This can be a more expensive and complex option and carries the risk of not raising the funds needed due to poor market conditions.

Financial Instruments

EquitiesEquities are a type of security that represents the ownership in a company. Equities are traded (bought and sold) in stock markets. Alternatively, they can be purchased via the Initial Public Offering (IPO) route, i.e. directly from the company. Investing in equities is a good long-term investment option as the returns on equities over a long time horizon are generally higher than most other investment avenues. However, along with the possibility of greater returns comes greater risk.

Mutual fundsA mutual fund allows a group of people to pool their money together and have it professionally managed, in keeping with a predetermined investment objective. This investment avenue is popular because of its cost-efficiency, risk-diversification, professional management and sound regulation. You can invest as little as Rs. 1,000 per month in a mutual fund. There are various general and thematic mutual funds to choose from and the risk and return possibilities vary accordingly.

BondsBonds are fixed income instruments which are issued for the purpose of raising capital. Both private entities, such as companies, financial institutions, and the central or state government and other government institutions use this instrument as a means of garnering funds. Bonds issued by the Government carry the lowest level of risk but could deliver fair returns.

DepositsInvesting in bank or post-office deposits is a very common way of securing surplus funds. These instruments are at the low end of the risk-return spectrum.

Cash equivalentsThese are relatively safe and highly liquid investment options. Treasury bills and money market funds are cash equivalents.

Non-financial Instruments

Real estateWith the ever-increasing cost of land, real estate has come up as a profitable investment proposition.

Gold

The 'yellow metal' is a preferred investment option, particularly when markets are volatile. Today, beyond physical gold, a number of products which derive their value from the price of gold are available for investment. These include gold futures and gold exchange traded funds.

Portfolio Diversification

Portfolio diversification is the means by which investors minimize or eliminate their exposure to company-specific risk, minimize or reduce systematic risk and moderate the short-term effects of individual asset class performance on portfolio value. In a well-conceived portfolio, this can be accomplished at a minimal cost in terms of expected return. Such a portfolio would be considered to be a well-diversified.Although the concepts relevant to portfolio diversification are customarily explained with respect to the stock markets, the same underlying principals apply to all types of investments. For example, corporate bonds have specific risk that can be diversified away in the same manner as that of stocks.

Account statementA document similar to a bank account statement that indicates the mutual fund units owned. A statement is issued each time the investor carries out a transaction.

Annual reportA write-up given to shareholders containing the yearly record of a mutual fund's performance. The report also informs the investor about the fund's earnings and operations. Reports are sent out yearly.

AssetsAssets are a resource of money value such as stocks, bonds, real estate and cash.

Asset classDifferent types of investments such as stocks, bonds, real estate and cash.

Asset Management Company (AMC)The trustee delegates the task of floating schemes and managing the collected money to a company of professionals, usually experts who are known for smart stock picks. This is an asset management company (AMC). AMC charges a fee for the services it renders to the MF trust. Thus the AMC acts as the investment manager of the trust under the broad supervision and direction of the trustees. The AMC must have a net worth of at least Rs10 crores at all times and it can not act as a trustee of any other mutual fund.

Annual ReturnThe percentage of change in net asset value over a year's time, assuming reinvestment of distribution such as dividend payment and bonuses.

Annualized ReturnsAbsolute returns over a period (which could be larger or smaller than a year) aggregated to a period of one year.

Applicable NAVNAV at which a transaction is effected. A cut-off time is set by the fund and all investments or redemptions are processed at that particular NAV. This NAV is relevant if the application is received before that cut-off time on a day. A different NAV holds if received thereafter.

Application FormForm prescribed for investors to make applications for subscribing to the units of a fund.

Asset AllocationsAllocation of the portfolio of a mutual fund in various categories of assets such as equity, debt and others on the basis of the investment objective of the scheme. The process of diversifying

investments among different types of assets like stocks, bonds and cash in order to optimise risk / return tradeoff based on a person's financial situation and goals.

Average MaturityAverage time to maturity of all fixed-period investments in the portfolio of a scheme.

Automatic Investment PlanPeriodic investment of a fixed amount by a unitholder , either directly from his bank account or by issuing post-dated cheques, in his mutual fund account.

Automatic Withdrawal PlanAllows an investor to receive periodic payments of fixed amount or units from his investment in a mutual fund scheme. Retirees who want a regular income supplement often choose this.

Average Portfolio MaturityThe average maturity of all the bonds in a bond fund's portfolio.

Top Balanced funds

A mutual fund scheme with an investment objective of both long-term growth and income, through investment in stocks and bonds. Generally 60% is invested in stocks and 40% in bonds , in order to obtain the highest returns consistent with a low risk strategy.

Bear marketA period of time during which securities prices are falling in the stock market.

BenchmarkA standard used for comparison. Usually to provide a point of reference for evaluating a fund's performance. The common benchmarks for equiy-oriented funds are the BSE 200 index or the BSE Sensex.

BetaA measure of a fund's volatility in relation to the stock market, as measured by a stated index. By definition, the beta of the stated index is 1; a fund with a higher beta has been more volatile than the market, and a fund with a lower beta has been less volatile than the market. Based on past historical records, a beta higher than 1.0 indicates that when the market rises, the stock will rise to a greater extent than that of the market; likewise, when the market falls, the stock will fall to a greater extent. A beta lower than 1.0 indicates that the stock will usually change to a lesser extent than that of the market. The higher the beta, the greater the investment risk.

Blue chipStock of a nationally known company that has a long record of profit, growth, and dividend payment, and a reputation for quality management, products, and services.

BrokerA broker is a licensed person authorised to receive commissions. Brokers are always affiliated with a brokerage company, or broker-dealer network. He is basically a salesman who sells stocks, bonds, or mutual funds.

Bull marketA distinctive time period, during which the prices of securities are rising, usually characterised by high trading volumes.

Basis Point (BP)The smallest measure used in quoting yields on fixed income securities. One basis point is one percent of one percent, or 0.01%.

Bottom-UpAn investment strategy that first seeks individual companies with attractive investment potential, then considers the economic and industry trends affecting those companies.

Top Capital Gains

The gains made on sale of securities and certain other assets (including units of mutual funds) are called capital gains. The gains can be long-term or short-term depending on the period of

holding of the asset and are charged to tax at different rates. Gains on mutual fund units held for a period of 12 months or more are long-term gains.

Call RiskThe risk that bonds will be redeemed (or "called") before maturity. This possibility increases during periods of falling interest rates.

Capital AppreciationAn increase in the value of an investment, measured by the increase in a fund unit's value from the time of purchase to the time of redemption.

Capital MarketA market where debt or equity securities are traded.

Close-ended schemesSchemes, which have a fixed date of redemption.

Collection Center

Locations where application forms are accepted by funds. Corpus

The total amount of money invested by all the investors in a scheme. Custodian

The keeper of a fund's securities and other assets. Cut off Time

In respect of all mutual funds regulated by SEBI, fresh subscriptions and redemptions are processed at a particular NAV. Every fund specifies a cut-off time in respect of fresh subscriptions and redemption of units. All requests received before the cut-off times are processed at that day's NAV and thereafter at the next day's NAV.

Call moneyMoney, which is, loaned in the call market, which can be demanded for repayment on call, which basically means immediately. The term call money is also known as money at short notice as it is repayable in 24 hours. It is also traded in the money market.

Capital (or principal)Initial amount of money invested, excluding any subsequent earnings.

Capital appreciationIncrease in the value of an asset such as a stock, bond, commodity or real estate.

Capital gains/lossesNet profit or losses from the sale of securities in the fund's portfolio. Short-term gains or losses are generated on securities held one year or less; long-term gains or losses pertain to securities held for more than one year.

Capital growthA rise in the market value of a mutual fund's securities shown by it's net asset value per unit. This is a long-term objective of many mutual funds.

Certificate of Deposit (CD)Short-term debt instrument issued by scheduled commercial banks excluding regional rural banks. They are unsecured instruments that mature between three months to one year.

Closed-end scheme/fundA type of fund that has a fixed number of shares usually listed on a major stock exchange. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis. Price is determined by supply and demand.

Closing priceThe price of a security after the final trade at the end of the day.

Commercial paperThey are short-term unsecured instruments issued by a company that needs to raise money; and is willing to pay an interest rate. These are included in portfolios of some mutual funds. Such instruments have maturities ranging from 3 months to 1 year.

Coupon RateThe interest rate that the issuer of a bond agrees to pay the bond-holder until maturity of thebond

Consumer Price IndexThe index compiled by a governmental agency which follows the cost of living by following the changes in price of basic goods and services over time. This index measures inflation.

Credit analysisThe process of analysing information on companies and bonds in order to estimate whether the issuer will meet with its future obligations to pay out.

Credit ratingA measure indicating the bond issuer's credit worthiness, or his/ her ability to repay the loan. The bonds are rated by an independent rating agency such as CRISIL, ICRA, and CARE.

Cumulative total returnUsually calculated in the same manner as standardised average annual total return, except that these figures represent the total change in value of an investment over the stated periods and do not reflect any sales charges.

Current assetsAssets that can be converted to cash within a year.

Current liabilitiesLiabilities that must be paid within a year.

Cyclical stocksStocks which rise and fall in price with the state of the economy, in such industries as construction, automobile, engineering or those affected by the international economy such as shipping, aviation, and tourism. Cyclical stocks are also stocks which are affected by the natural environment such as fertilisers and tea. Examples of non-cyclical stocks would be drugs, insurance, basic foodstuffs and many other consumer products.

CouponInterest rate on a debt security that the issuer promises to pay to the holder until maturity Usually expressed as a percentage of the face value of the security.

Credit RatingA measure of a bond issuer's creditworthiness or the ability to repay the loan as rated by an independent rating agency, such as CRISIL, ICRA and CARE.

Credit RiskThe possibility that a bond issuer will default, and fail to repay principal or interest as promised. Also known as "default risk".

DebenturesInstruments of debt, usually unsecured. They are also usually credit rated.

Debt funds/ securitiesA general term for any security representing money loaned that must be repaid to the lender at a future date. Bonds, T-notes, T-bills and money market instruments are debt securities, but they vary in maturities.

DefaultA term that denotes the failure to pay the principal or interest on a financial obligation (such as a bond).

DerivativeFinancial instrument whose value is based on the value of another underlying security.

DiscountRefers to the selling price of a bond when it's price is below its maturity value.

DividendPortion of profits that a company or a mutual fund distributes to its shareholders or unit holders.

Dividend ReinvestmentIn a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Hence instead of receiving dividend, the unit holders receive units. Thus the number of units allotted under the dividend reinvestment plan would be the dividend declared divided by the ex-dividend NAV.

Dividend WarrantAn instrument issued by companies/ mutual funds to an investor for the purpose of payment of dividends

DistributionPay out to shareholders resulting from a mutual fund's realised capital gains, interest, or dividend income. A mutual fund dividend, or distribution, may be physically paid to the investor, or it may be reinvested in the fund, giving the investor more shares.

DiversificationThe investment strategy which spreads investments among securities in different industries, with different risk levels, and in different companies, potentially lowering risk by reducing the impact of any one security. Mutual funds are the best method of diversification because their portfolios consist of a variety of securities, unless otherwise noted. Mutual funds are a diversified investment by nature.

DepreciationA decline in an investment's value.

DurationDuration is a measure of a bond's lifetime that accounts for the size and timing of the bond's cash flows. Generally, the shorter the duration, the lower the price volatility, all other things being equal.

Top Earnings (per share)

The net income for a company during a specific period. It is calculated by subtracting the cost of sales, operating expenses and taxes from revenues, for a specific time period. It is the reason corporations exist and often the single most important determinant of a stock's price.

Entry loadThe load on purchases after the Initial (Public) Offer.

EquityA type of security representing part ownership in a company/ corporation. Common stocks, preferred stock, and convertible stock are types of equity securities, but debt securities are not, as they do not represent ownership.

Exit loadThe load on redemption other than the Contingent Deferred Sales Charge (CDSC) permitted under SEBI Regulations. A fee charged by some funds for redeeming or buying back fund shares. The amount sometimes depends on how long the investment was held, so the longer the time period, the smaller the charge.

Equity SchemesA scheme that invests primarily in stocks while seeking to provide relatively high long-term growth of capital.

Ex-Dividend DateThe date following the record date for a scheme. When a fund's net asset value reduces by an amount equal to a dividend distribution.

Expense RatioA fund's operating expenses, expressed as a percentage of its average net assets.

Ex Dividend Or Ex DistributionThe date when the dividend is deducted from assets of a fund i.e. from the NAV

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Face valueThe value printed on the face of a stock, bond or other financial instrument or document.

FCNRA Fully Convertible Non-Rupee account that can be opened for funds coming in from abroad or from local funds. The funds in the account are held in a foreign currency.

Fixed assetsA long-term asset that will not be converted to cash within a year such as a house or a plot of land.

Fixed depositAn investment instrument where you invest a fixed amount of money for a fixed period of time at a fixed rate of interest.

Fixed income funds/ securitiesA security that pays a certain rate of return such as a bond but do not offer an investor much potential for growth. This usually refers to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, or preferred stock, which pays a fixed dividend. A mutual fund investing in these types of securities may also be referred to as a fixed-income investment or security.

Fixed rateA loan in which the interest rates do not change during the entire term of the loan.

Foreign Institutional Investor (FII)FII means an institution established or incorporated outside India which proposes to make investment in India in securities and is registered with SEBI.

Floating rateAn interest rate, which is periodically adjusted, usually based on a standard market rate outside the control of the institution. These rates often have a specified floor and ceiling, which limit the floating rate. The opposite of having a floating rate is having a fixed rate.

Front-end loadA one-off charge that an investor must pay at the time the units of the scheme are bought.

Face ValueThe original issue price of one unit of a scheme

FundA mutual fund is a trust under the Indian Trust Act. Each fund manages one or more schemes.

Fund CategoryClassification of a scheme depending on the type of assets in which the mutual fund company invests the corpus. It could be a growth, debt, balanced, gilt or liquid scheme

Fund FamilyAll the schemes, which are managed by one mutual fund.

Fund Management CostsThe charge levied by an AMC on a mutual fund for managing their funds.

Fund ManagerThe person who makes all the final decisions regarding investments of a scheme

Family Of SchemesA set of schemes with different investment objectives from a single asset management company usually allowing investors to "switch" their investments from one scheme to another at a no charge or a nominal charge.

Fixed Income SecurityA security that pays a fixed rate of interest such as a "bond" but do not offer an investor much potential for growth.

Front-End LoadA one-time charge that an investor pays at the time of buying units of a scheme.

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GiltsA type of government security.

Government securitiesSecurities that are sold to the public by the government, for example, bonds.

Growth fundsMutual funds with a primary investment objective of long-term growth of capital. Unlike income, which is somewhat regular and consistent in most cases, growth is much less certain. Growth investments, however, usually outpace the returns on income investments over the long-term (five to ten years, or longer). It invests mainly in common stocks with significant growth potential.

Growth investingA style of investing that invests in fundamentally sound businesses with the belief that they will go up in price. The stocks in this portfolio are well researched, liquid and of high quality and will usually give you a high P/E ratio and lower dividend yields in comparison to the market.

Growth schemeA scheme where investments are made in equity and convertible debentures. The objective is to provide capital appreciation over a period of time.

Guaranteed ReturnsThe return assured by the mutual funds as a minimum return in certain income plans

Top Holdings

The possessions or securities in an investors portfolio.Top

Inception dateThe end of a scheme's initial offering period and the start of the scheme's formation.

Income fundsA 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.

IndexingAn investment strategy that consists of the construction of a portfolio of stocks. It is designed to track the total return performance of an index of stocks.

Inflation riskThe possibility that the value of assets or income will be eroded by inflation affecting the purchasing power of a currency. Often mentioned in relation to fixed income funds as they may minimise the possibility of losing principal.

Initial Public Offer (IPO)A fixed time period during which the first sale of units of a scheme are made available to the public.

Interest rate riskThe risk that a security's value will change due to an increase or decrease in interest rates. A bond's price will always drop as interest rates rise and when interest rates fall, a bond's price will rise.

IssueA security made available to the public. Mutual funds issue shares to investors in return for cash.

Income / Debt FundsA fund whose primary objective is current income in the form of interest or dividends. Mutual funds that invest primarily in fixed income securities are called income funds.

Index FundsA type of mutual fund in which the portfolios are constructed to mirror a specific market index.

Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the market which they are mirroring.

IndexationThe central government specifies an index linked to the wholesale price index. The indices of two years (year of purchase and the year of sale) are used for the purpose of computing capital gains tax. The purchase price is multiplied by the index of the year of sale and the product is divided by the index of the year of purchase. This benefit is available only if the security has been held for more than 12 months. On sale of equity-oriented mutual fund schemes, one can opt for paying tax at the rate of a flat 10% or go in for paying 20% after taking the benefit of indexation.

IndexA benchmark against which the performance of a scheme is measured. Usually, equity fund use BSE 30 or BSE 200 as the benchmark. For fixed-income funds it is a bond index. The benchmark index must consist of securities similar to which the scheme invests in.

Index FundA fund that tries to mirror the performance of an index by investing in securities making up that index. (note: it is not possible for investors to actually invest in the actual index, such as the BSE 30). This is a passive management style which normally results in lower management fees.

Investment ObjectiveThe stated purpose or goal of a security's operations. This term often determines the types of investments the security makes, the results expected, and the level of risk with which it is associated.

Investment GradeHigh quality bonds that are rated AAA or higher by a rating agency. Investment grade bonds are considered safe. However, the higher the bond's rating, the lower the interest it offers.

Top Liabilities

The claims of investors who have loaned to a company. The debts of a company. Liquidity

The ease with which an asset can be converted to cash. Mutual fund units are generally considered highly liquid investments as they can be sold on any business day at their current net asset value.

Load fundA mutual fund that charges an extra sales fee on top of the other fees. Loads do not mean a fund is managed better. There are two types of loads; front-end, charged at the time of purchase and back-end, charged at the time of redemption.

Liquid Funds /Money Market FundsFunds investing only in short-term money market instruments including treasury bills, commercial paper and certificates of deposit. The objective is to provide liquidity and preserve the capital

Lock In PeriodThe period after investment in fresh units during which the investor cannot redeem the units.

Top Market risk

The potential loss that is possible as a result of short-term volatility of the stock market, indicated by beta. Owning mutual funds shields an investor to some market risk that a stockholder may be vulnerable to because of their diversification.

Maturity dateDate on which the principal amount of a debt instrument or bond becomes due and payable in full.

Maturity valueThe amount the issuer agrees to pay out when the bond reaches it's maturity date.

Money market fundsA mutual fund that invests in short-term government securities, certificates of deposit and other highly liquid securities such as T- bills and short-term commercial paper, and generally pays money market rates of interest. An investment in a money market fund is neither insured nor guaranteed by the government or by any other entity or institution, so there is no assurance that the share price will be maintained.

Money Market InstrumentsCommercial paper, treasury bills, GOI securities with an unexpired maturity up to one year, call money, certificates of deposit and any other instrument specified by the Reserve Bank of India.

Municipal bond fundA mutual fund consisting of bonds issued by a state, city, or local government entity. The interest these securities pay is generally passed through to shareholders free of tax.

Mutual fundA Mutual Fund is a common pool of money from numerous investors who wish to save money. Each fund's investments are chosen and monitored by qualified professionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds, money market instruments or a combination of those. Mutual funds offer investors the advantages of diversification, professional management,affordability, liquidity and convenience.

Management FeeThe amount a scheme pays to its asset management company for its services. Typically, a certain percentage of assets under management. A fund's management fee is listed in its offer document.

Market TimingAttempting to time the purchase and sale of securities or mutual fund units to coincide with market conditions.

Maturity DateThe date on which the principal amount of a bond is to be paid in full.

Management FeeThe amount paid by a mutual fund to the asset management company for its services; SEBI restricts this to 2.50% p.a. in equity funds and 2.25% p.a. for equity funds.

Minimum PurchaseThe smallest investment amount a scheme will accept to open a new unitholder account.

Net Asset ValueMarket value of one share of a mutual fund on a given day; also known as the bid price. Unlike the public offering price, the NAV includes no sales charges. The NAV is calculated each day by taking the closing market value of all securities owned by a mutual fund, plus all other assets (e.g. cash), and deducting the fund's liabilities. This sum is then divided by the fund's total number of shares outstanding.

Net profit marginA measure of a company's profitability and efficiency calculated by dividing a measure of net profits (operating profit minus depreciation and income taxes) by sales.

Net worthThe value found by subtracting total liabilities from total assets.

Net AssetsThe net worth of a fund.

No Load FundA fund that sells its units to investors without a sales load/charge.

NREA Non-Resident External Rupee account that NRIs can open with any Indian bank. They can use this account for making investments in India on a repatriable basis.

NRIA Non-Resident Indian who is an Indian citizen or a person of Indian origin but who resides abroad. NRIs have to follow specific rules when investing in India.

NROAn Ordinary Non-Resident Rupee account which can be opened for funds coming in from abroad or from local funds. The amount in the account is, however, non-repatriable.

Top Offer document

The offer document or prospectus is a booklet, a legal document that provides information about a specific mutual fund such as the funds investment objectives, load structure, subscription and redemption policies. Its purpose is to also inform investors of potential risks involved before they decide to invest in a fund and provides other information that could help an individual decide whether the investment is appropriate for him. An abridged offer document of the scheme also accompanies the application form of every scheme.

Offering priceThe price at which mutual fund shares are offered for sale to the public. Also known as offering price. The public offering price represents the net asset value plus any applicable initial sales charges.

Offer Document / ProspectusA legal document, that describes a mutual fund scheme. It contains information required by the Securities and Exchange Board of India explaining the offer, including the terms, issuer, objectives, historical financial statements,

Open-Ended SchemeA scheme where investors can buy and redeem their units on any business day. Its units are not listed on any stock exchange but are bought from and sold to the mutual fund.

Operating ExpensesThe day-today costs a mutual fund incurs in conducting business, such as for maintaining offices, staff, and equipment. These expenses are paid from the fund's assets before any earnings are distributed.

Opening NAVThe NAV disclosed by the fund for the first time after the closure of an IPO.

Top Performance

How a fund has done in the past and how well it is doing at present. Past performance is often used to get an idea of future performance, however, past performance does not guarantee future performance will be the same.

PortfolioA pool of individual investments owned by an investor or mutual fund. Portfolios may include a combination of stocks, bonds, and money market instruments. A list of the fund's current portfolio will usually be contained in a mutual fund's annual report.

Preferred stockA type of capital stock whose holders are paid dividends at a specified rate. It has preference over common stock in the payment of dividends and the liquidation of assets, but does not ordinarily carry voting rights. The benefits of owning preferred stock are realised if the company ever goes bankrupt. If this occurs, preferred stock shareholders receive their money first. General (also known as common) stockholders may not receive any money, if none is remaining after paying preferred stock holders.

Price-earnings ratio (P/E)One of the benchmarks used by portfolio managers to help them value companies. It is calculated by dividing a company's share price by its earning per share.

Price Of UnitsPrice offered by a mutual fund for repurchase or sale of a unit on a daily basis.

ProspectusAn offer document by which a mutual fund invites the public for subscribing to the units of a scheme. This document contains information about the scheme and the AMC so as to enable a prospective investor make an informed decision.

Principal (or Capital)Initial amount of money invested, excluding any subsequent earnings.

Promissory noteA document signed by the borrower in which he promises to repay a loan under agreed-upon terms.

Public Offering Price (POP)The price at which mutual fund shares are offered for sale to the public. Also known as offering price. The public offering price represents the net asset value plus any applicable initial sales charges.

Top Rate of return

Rate of return is calculated by subtracting the purchase value by the present value and then dividing it by the purchase value. For equities, we often include dividends with the present value.

Real returnThe rate of return earned on an investment after adjusting for the rate of inflation during the time the investment was held.

RedeemCashing in units by selling them back to the mutual fund.

Redemption loadA fee charged by some funds for redeeming or buying back fund shares. The amount sometimes depends on how long the investment was held, so the longer the time period, the smaller the charge.

Redemption priceThe price at which a mutual fund's units are redeemed or bought back by a fund. The redemption price is usually equal to the current net asset value per unit and less the exit load if applicable.

RepatriableThe return from abroad of the financial assets of an organisation or individual, and the conversion of foreign currency to Rupees.

ReturnThe sum of the income of a fund plus its capital gains.

RiskIn general, risk is the possibility of suffering loss. There are many types of risk, such as credit risk, principal risk, inflation risk, interest rate risk, and investment risk. If you are prepared to accept greater risk, you have the chance of earning higher returns or profits on your money. Low-risk investments, while generally safer, do not usually produce a high return, hence the loss of potential gain.

Risk/ reward trade-offThe compromise made between high- and low-risk investments. High-risk investments generally generate more earnings, while low-risk ones generate a lower rate of return.

Risk toleranceThe willingness of an investor to tolerate the risk of losing money for the potential to make money.

Rupee Cost AveragingAn investment strategy based on investing equal amounts in a fund at regular intervals. Because more shares are bought when prices are low and fewer shares when prices are high, the average cost of your shares may be lower than the average price over the period you bought them. Rupee cost averaging cannot guarantee a profit or protect against loss in declining markets.

Record DateThe date by which mutual fund holders are registered as unit owners to receive any future dividend or capital gains distribution.

Redemption Of UnitsBuying back/cancellation of the units by a fund on an on-going basis or on maturity of a scheme. The investor is paid a consideration linked to the NAV of the scheme

RefundThe act of returning money to an investor by the fund. This could be on account of rejection of an application to subscribe units or in response to an application made by the investor to the fund to redeem units held by him.

Registrar or Transfer AgentThe institution that maintains a registry of unitholders of a fund and their unit ownership. Normally the registrar also distributes dividends and provides periodic statements to unitholders.

Top Sales charge

A charge added on to the price of a mutual fund when you buy it. Sector Fund

A fund that invests primarily in securities of companies engaged in a specific industry. Sector funds entail more risk, but may offer greater potential returns than funds that diversify their portfolios.

Settlement DateThe date by which a transaction must be settled, that is, to make the payment of funds and the delivery of securities.

Standard DeviationA measure of the degree to which a fund's return varies from the average of the scheme's own return.

Stock FundA fund that invests primarily in stocks.

SecuritiesThe holdings of a mutual fund, such as stocks or bonds. Stocks are securities representing ownership shares. Bonds are securities representing a contractual debt obligation of the issuer to repay the holder, with interest.

SharesUnits of ownership in a corporation. In a mutual fund, the value of each unit is calculated by dividing net assets by the number of shares.

S & P 500 stocks (Standard & Poor's Composite Index of 500 stocks)Market value-weighted index that measures stock market price movements, based on the aggregate performance of 500 widely held common stocks.

StocksA share of stock represents ownership, or equity, in a corporation. When a company needs money to grow and expand, it may sell part of its ownership to the public in the form of shares (stock). In exchange for the money received from the sale, the company gives shareholders a

portion of its future profits, as well as a measure of its decision-making power. These securities generally have the most potential for capital appreciation, but their rights are subordinated in the event of a company liquidation or bankruptcy.

SwitchingTransferring your investment from one scheme to another. An investor may want to switch due to changing market conditions.

Systematic Investment Plan (SIP)Allows an investor to periodically invest in units by issuing post-dated cheques. It allows the investor to benefit from rupee cost averaging.

Systematic Withdrawal Plan (SWP)Permits the investor to receive regular payments of a fixed amount or capital appreciation from his investment in a mutual fund scheme on a periodic basis. Retirees in need of a regular income often opt for this.

Sale priceThe price at which a fund offers to sell one unit of its scheme to investors. This NAV is grossed up with the entry load applicable, if any.

SchemeA mutual fund can launch more than one scheme. With different schemes, in spite of there being a common trust, the assets contributed by the unit holders of a particular scheme are maintained and managed separately from other schemes and any profit/loss from the assets accrue only to the unit holders of that scheme

Scheme ObjectiveThe purpose statement consisting of the goal and the avenues of investment released by the fund.

Sector Fund or Specialty FundIt concentrates its holdings in a specific industry such as health care, energy, insurance, leisure.

Systematic Withdrawal Plan (SWP)/Recurring withdrawal facility (RWF)A plan offered with some schemes under which post-dated cheques for fixed amounts (as may be fixed by the fund) are issued to the investors for monthly, bi-monthly or quarterly withdrawals. The withdrawals are as per the requirements of the investor specified by him/ her at the time of investment.

Systematic Investment Plan (SIP)/ Recurring investment facility (RIF)A program that allows an investor to provide post-dated cheques to the mutual fund to allot fresh units at specified intervals (usually monthly or quarterly). On the specified dates, the cheques are realized by the mutual fund and additional units at the prevailing NAV are allotted to the investor. This enables him to invest as little as Rs 1000 a month and take advantage of rupee cost averaging.

Systematic Transfer Program (STP)A plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount from one scheme to another.

Top Tax Deducted at Source (TDS)

No tax is withheld or deducted at source, where any income is credited or paid by a mutual fund, as per the provisions of Section 194K and 196A of the Act.

Top-down investingThe top-down style of investment management places primary importance on country or regional allocation. Top-down managers generally focus on global economic and political trends in selecting the countries or regions where they expect to find investment opportunities. Only then do they employ a more fundamental analysis of individual stocks in order to make their final selections.

Total returnReturn on an investment over a specified period of time, which includes share-price appreciation, reinvested dividends or interest, and any capital gains.

Transaction costsThe costs incurred by the buying and selling of securities including broker commissions and the difference between dealer buying and selling price.

Treasury bills (T-bills)A short-term security with a maturity of one year or less.

Treasury bonds (T-bonds)A long-term debt instrument with a maturity of 10 years or longer.

Treasury notes (T-notes)A certificate representing an intermediate-term loan to the government with a maturity between two to ten years.

Total Assets Under ManagementThe market value of the total investments of a fund as on a particular date

Total ReturnsReturns from an investment calculated taking into account income distribution and capital appreciation.

Transfer AgentA firm employed by a mutual fund to maintain unitholder records, including purchases, sales, and account balances.

Treasury Bill (T-bill)A debt security issued by the Indian government, having a maturity of less than a year.

Turnover RateBased on the corpus, it is the number of times at which the fund buys and sells securities each year.

TrusteeA person or a group of persons having an overall supervisory authority over the fund managers. They ensure that the managers keep to the trust deed, that the unit prices are calculated correctly and the assets of the funds are held safely.

Time HorizonThe period of time one can stay invested (eg. number of years to retirement). Longer time horizons can reduce volatility risk.

Unit HolderA person who holds Unit(s) under a Mutual Fund.

Value investingThe investment approach which favours buying under-priced stocks that have the potential to perform well and increase in price in the future.It first seeks individual companies with attractive investment potential, then considers the economic and industry trends affecting those companies. Value managers usually begin their search with fundamental analysis, in order to find companies whose current prices may fail to reflect their potential longer-term value.

VolatilityThe tendency of an investment or market to rise or fall sharply in price within a short-term period. Volatility is measured by beta.

Yield to Maturity (YTM)The yield earned by a bond if it is held until its maturity date.

YieldThe annual rate of return on an investment usually expressed as a percentage.

Yield CurveA graph depicting yield vis-a-vis maturity. If short-term rates are lower than long-term rates, it is

a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there is isn't much difference, it is a flat yield curve.

Zero coupon bondA bond that is sold at a fraction of its face value. It does not, however, provide periodic interest payments but pays principal upon maturity.

Calculated as:

Also known as "disposable personal income" (DPI).

INVESTOPEDIA EXPLAINS 'Disposable Income'

For example, let's assume your household personal income includes $100,000 from salaries and you are paying at the 35% tax rate. Your household's disposable income would then be $65,000 ($100,000 - $35,000).Introduction to Bajaj Capital ®

Bajaj Capital Limited ("Bajaj Capital") is India's premier "Investment Services" Company, with nearly 50 years of experience in helping people protect and grow their wealth. We've helped to create more millionaires than any other firm in India. But it's our deep personal relationships with clients that truly sets us apart.No other firm can match the depth of our experience and our dedication to personal service. The markets may fluctuate, but our dependability never does.Bajaj Capital holds the Certificate of Registration [INM000010544] to act as Merchant Banker (Cat-I), Underwriter, Dealer on the OTC Exchange of India, Depository Participant [IN-DP-NSDL-267-2006] of NSDL, granted by the Securities and Exchange Board of India. Further, Bajaj Capital is an AMFI Registered ARN [0010] holder and has also been granted the Certificate of Registration [Regn.No.03310] to act as Point of Presence by the Pension Fund Regulatory Authority for the NPS Schemes.Our bouquet of services includes:Personalized Investment Services:requires creating a customized 'snapshot' using our proprietary 360 degree financial assessment tool, at no extra charge.360 Degree Financial Assessment ToolOur proprietary 360° Financial Assessment Tool is a unique scientific method that takes an all-round view of investments using 3 steps: