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 institutions
Financial 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.
Retailers
If 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.
Suppliers
Most 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 companies
Most 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 companies
Factor 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 friends
If 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 funding

Often 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 capitalists
Venture 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
Equities
Equities 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 funds
A 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.
Bonds
Bonds 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.
Deposits
Investing 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 equivalents
These are relatively safe and highly liquid investment options. Treasury bills and money market
funds are cash equivalents.

Non-financial Instruments
Real estate
With 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
statement
A 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
report
A 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.
Assets
Assets are a resource of money value such as stocks, bonds, real estate and cash.
Asset
class
Different 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
Return
The percentage of change in net asset value over a year's time, assuming reinvestment of
distribution such as dividend payment and bonuses.

Annualized
Returns
Absolute returns over a period (which could be larger or smaller than a year) aggregated to a
period of one year.
Applicable
NAV
NAV 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
Allocations
Allocation 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
Maturity
Average time to maturity of all fixed-period investments in the portfolio of a scheme.
Automatic
Investment
Plan
Periodic 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
Plan
Allows 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
Maturity
The average maturity of all the bonds in a bond fund's portfolio.
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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
market
A period of time during which securities prices are falling in the stock market.
Benchmark
A 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.
Beta
A 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
chip
Stock 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.
Broker
A 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
market
A 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-Up
An investment strategy that first seeks individual companies with attractive investment potential,
then considers the economic and industry trends affecting those companies.
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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
Risk
The risk that bonds will be redeemed (or "called") before maturity. This possibility increases
during periods of falling interest rates.
Capital
Appreciation
An 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
Market
A market where debt or equity securities are traded.
Close-ended
schemes
Schemes, 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
money
Money, 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
appreciation
Increase in the value of an asset such as a stock, bond, commodity or real estate.
Capital
gains/losses
Net 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
growth
A 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/fund
A 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
price
The price of a security after the final trade at the end of the day.
Commercial
paper
They 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
Rate
The interest rate that the issuer of a bond agrees to pay the bond-holder until maturity of
thebond
Consumer
Price
Index
The 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
analysis
The 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
rating
A 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
return
Usually 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
assets
Assets that can be converted to cash within a year.
Current
liabilities
Liabilities that must be paid within a year.
Cyclical
stocks
Stocks 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.
Coupon
Interest 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
Rating
A 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
Risk
The possibility that a bond issuer will default, and fail to repay principal or interest as promised.
Also known as "default risk".
Debentures
Instruments of debt, usually unsecured. They are also usually credit rated.
Debt
funds/
securities
A 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.
Default
A term that denotes the failure to pay the principal or interest on a financial obligation (such as a
bond).
Derivative
Financial instrument whose value is based on the value of another underlying security.
Discount
Refers to the selling price of a bond when it's price is below its maturity value.
Dividend
Portion of profits that a company or a mutual fund distributes to its shareholders or unit holders.
Dividend
Reinvestment
In 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
Warrant
An instrument issued by companies/ mutual funds to an investor for the purpose of payment of
dividends
Distribution
Pay 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.
Diversification
The 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.
Depreciation
A decline in an investment's value.
Duration
Duration 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.
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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
load
The load on purchases after the Initial (Public) Offer.
Equity
A 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
load
The 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
Schemes
A scheme that invests primarily in stocks while seeking to provide relatively high long-term
growth of capital.
Ex-Dividend
Date
The 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
Ratio
A fund's operating expenses, expressed as a percentage of its average net assets.
Ex
Dividend
Or
Ex
Distribution
The date when the dividend is deducted from assets of a fund i.e. from the NAV
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Face
value
The value printed on the face of a stock, bond or other financial instrument or document.
FCNR
A 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
assets
A long-term asset that will not be converted to cash within a year such as a house or a plot of
land.
Fixed
deposit
An 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/
securities
A 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
rate
A 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
rate
An 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
load
A one-off charge that an investor must pay at the time the units of the scheme are bought.
Face
Value
The original issue price of one unit of a scheme
Fund
A mutual fund is a trust under the Indian Trust Act. Each fund manages one or more schemes.

Fund
Category
Classification 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
Family
All the schemes, which are managed by one mutual fund.
Fund
Management
Costs
The charge levied by an AMC on a mutual fund for managing their funds.
Fund
Manager
The person who makes all the final decisions regarding investments of a scheme
Family
Of
Schemes
A 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
Security
A security that pays a fixed rate of interest such as a "bond" but do not offer an investor much
potential for growth.
Front-End
Load
A one-time charge that an investor pays at the time of buying units of a scheme.
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Gilts
A type of government security.
Government
securities
Securities that are sold to the public by the government, for example, bonds.
Growth
funds
Mutual 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
investing
A 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
scheme
A scheme where investments are made in equity and convertible debentures. The objective is to
provide capital appreciation over a period of time.
Guaranteed
Returns
The return assured by the mutual funds as a minimum return in certain income plans
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Holdings
The possessions or securities in an investors portfolio.
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Inception
date
The end of a scheme's initial offering period and the start of the scheme's formation.
Income
funds
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.
Indexing
An 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
risk
The 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
risk
The 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.
Issue
A security made available to the public. Mutual funds issue shares to investors in return for
cash.
Income
/
Debt
Funds
A 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
Funds
A 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.
Indexation
The 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.
Index
A 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
Fund
A 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
Objective
The 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
Grade
High 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.
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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
fund
A 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
Funds
Funds 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
Period
The period after investment in fresh units during which the investor cannot redeem the units.
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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
date
Date on which the principal amount of a debt instrument or bond becomes due and payable in
full.
Maturity
value
The amount the issuer agrees to pay out when the bond reaches it's maturity date.
Money
market
funds
A 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
Instruments
Commercial 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
fund
A 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
fund
A 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
Fee
The 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
Timing
Attempting to time the purchase and sale of securities or mutual fund units to coincide with
market conditions.
Maturity
Date
The date on which the principal amount of a bond is to be paid in full.

Management
Fee
The 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
Purchase
The smallest investment amount a scheme will accept to open a new unitholder account.
Net
Asset
Value
Market 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
margin
A 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
worth
The value found by subtracting total liabilities from total assets.
Net
Assets
The net worth of a fund.
No
Load
Fund
A fund that sells its units to investors without a sales load/charge.
NRE
A 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.
NRI
A 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.
NRO
An 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.
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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
price
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.
Offer
Document
/
Prospectus
A 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
Scheme
A 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
Expenses
The 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
NAV
The NAV disclosed by the fund for the first time after the closure of an IPO.
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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.
Portfolio
A 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
stock
A 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
Units
Price offered by a mutual fund for repurchase or sale of a unit on a daily basis.
Prospectus
An 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
note
A 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
return
The rate of return earned on an investment after adjusting for the rate of inflation during the time
the investment was held.
Redeem
Cashing in units by selling them back to the mutual fund.

Redemption
load
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.
Redemption
price
The 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.
Repatriable
The return from abroad of the financial assets of an organisation or individual, and the
conversion of foreign currency to Rupees.
Return
The sum of the income of a fund plus its capital gains.
Risk
In 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-off
The 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
tolerance
The willingness of an investor to tolerate the risk of losing money for the potential to make
money.
Rupee
Cost
Averaging
An 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
Date
The date by which mutual fund holders are registered as unit owners to receive any future
dividend or capital gains distribution.
Redemption
Of
Units
Buying 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
Refund
The 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
Agent
The 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.
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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
Date
The date by which a transaction must be settled, that is, to make the payment of funds and the
delivery of securities.
Standard
Deviation
A measure of the degree to which a fund's return varies from the average of the scheme's own
return.
Stock
Fund
A fund that invests primarily in stocks.
Securities
The 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.
Shares
Units 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.
Stocks
A 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.
Switching
Transferring 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
price
The 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.
Scheme
A 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
Objective
The purpose statement consisting of the goal and the avenues of investment released by the
fund.
Sector
Fund
or
Specialty
Fund
It 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
investing
The 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
return
Return on an investment over a specified period of time, which includes share-price
appreciation, reinvested dividends or interest, and any capital gains.
Transaction
costs
The 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
Management
The market value of the total investments of a fund as on a particular date
Total
Returns
Returns from an investment calculated taking into account income distribution and capital
appreciation.
Transfer
Agent
A 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
Rate
Based on the corpus, it is the number of times at which the fund buys and sells securities each
year.

Trustee
A 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
Horizon
The period of time one can stay invested (eg. number of years to retirement). Longer time
horizons can reduce volatility risk.
Unit
Holder
A person who holds Unit(s) under a Mutual Fund.
Value
investing
The 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.
Volatility
The 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.
Yield
The annual rate of return on an investment usually expressed as a percentage.
Yield
Curve
A 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
bond
A 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 Tool
Our proprietary 360 Financial Assessment Tool is a unique scientific method that
takes an all-round view of investments using 3 steps: