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Mutual Fund Jargons for Mutual Fund Investors in India – A Formidable List
29 Apr 2026 | 11 minutes read
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If you’re a beginner who’s just stepping into the world of mutual fund investing, you might feel a bit lost with all the jargon that’s commonly used. From CAGR to NAV and Alpha, these terms may seem alien - and frankly, overwhelming.
But worry not! Things are not as challenging as they seem. We’ve curated a comprehensive list of all the mutual fund jargon you need to know and understand to feel ready.
Table of Content
Basic Mutual Fund Terms
Mutual Funds
A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in various asset classes, like stocks and bonds, in keeping with the investment objective of the scheme.
Net Asset Value (NAV)
NAV is short for Net Asset Value. It is the price of each unit of a mutual fund scheme. MF units are bought and sold based on the prevailing NAV. Unlike shares, where prices change constantly during trading hours, the NAV of a scheme is determined at the end of each day by the following formula:
NAV (in INR) = Market or Fair Value of Scheme's investments + Current Assets - Current Liabilities and Provision/ Number of Units outstanding under the Scheme on the Valuation Date
Assets Under Management (AUM)
AUM refers to the total market value of all the investments managed by a mutual fund scheme on behalf of its investors. It indicates the size of the fund and the amount of money it is currently managing.
Fund Manager
A fund manager is an experienced professional responsible for managing a mutual fund scheme and its investments on behalf of the investors. The fund manager makes decisions on asset allocation, stock or bond selection, and portfolio rebalancing in line with the scheme’s investment objective.
Expense Ratio
The expense ratio is the annual fee charged by a mutual fund for managing investments on behalf of the investor. It includes costs such as the fund’s management fees, administrative expenses, registrar fees, custodian costs, and other operating costs. The total expense ratio of the fund is calculated as a percentage of the scheme’s average NAV.
Exit Load
Exit load is a fee that’s charged by mutual fund schemes when investors redeem units within a specific time period, usually 15 days to a year or more. So exit loads work like a penalty and are aimed at discouraging investors from withdrawing too soon.
Entry Load
Entry load was a fee that was charged when buying mutual fund units. But SEBI abolished entry load back in 2009 to protect investors.
Benchmark Index
A benchmark index is a standard against which a mutual fund scheme’s performance is compared. For example, a large-cap fund may use the Nifty 50 as its benchmark. A fund’s benchmark index is selected at the time of launching the fund based on the fund’s objectives.
Portfolio
A portfolio is simply a collection of securities held by a mutual fund scheme. It is a list of assets that the fund has invested in. The fund manager is responsible for building and managing the scheme portfolio as per the fund’s investment objectives.
Asset Allocation
Asset allocation is the strategy used to distribute investments across various asset classes like equity, debt, and commodities. Asset allocation can be used in the context of an MF scheme to talk about how the scheme allocates between these asset classes. It can also be used for individual portfolios in reference to balancing potential risk and return with allocations.
Investment Methods
Systematic Investment Plan (SIP)
SIP is an investment route that allows you to invest a fixed sum of money at regular (monthly/weekly/daily) intervals into a mutual fund scheme. The goal is to invest consistently through market ups and downs, instead of trying to time the market. For most schemes, SIPs may start at a nominal value of about Rs. 500.
Systematic Withdrawal Plan (SWP)
SWPs allow you to withdraw a fixed amount of money from your mutual fund investment at regular intervals. This helps you receive a regular and predetermined income from your MF investments over time.
Systematic Transfer Plan (STP)
An STP allows you to transfer a fixed amount of money or a fixed number of units from one mutual fund scheme to another, provided both schemes are managed by the same AMC. Just like SIPs, STP transfers also take place on a prespecified date of the month.
Lump Sum Investment
A lump-sum investment refers to investing a large amount of money at one time into a mutual fund scheme. The minimum lump-sum investment amount depends on the scheme in question, but generally it's about Rs. 5,000.
Rupee Cost Averaging
Rupee cost averaging is an investment strategy where you invest a fixed amount regularly into a mutual fund scheme to buy more fund units when markets are low and fewer units when markets rise. Over time, this averages out the per-unit cost of your investment.
Risk & Return Concepts
Alpha
Alpha measures a fund’s excess return over its benchmark. If a fund has a positive alpha, it indicates that the fund has outperformed its benchmark index.
Beta
Beta measures how sensitive a fund is to market movements. Here’s what different Beta values mean:
Beta = 1 → moves with the market
Beta > 1 → more volatile than the market
Beta < 1 → less volatile than the market
Standard Deviation
Standard deviation is a statistical way of measuring how much a fund’s returns can deviate from its average return. It is used as an indicator for measuring volatility.
Sharpe Ratio
The Sharpe ratio measures a mutual fund’s return per unit of risk. So, it helps you understand the risk-adjusted returns of a fund. A higher ratio indicates better risk-adjusted performance.
Volatility
Volatility refers to the degree of fluctuation in a fund’s returns over time.
Downside Risk
Downside risk refers to the potential a mutual fund’s NAV to decline due to adverse market conditions. It measures the possibility and magnitude of such losses.
Diversification
Diversification is a risk management strategy where the investment is spread across assets to reduce concentration risk and potentially earn better returns. The idea is that all asset classes don’t behave the same way during periods of market volatility. So when one assets suffers and a different one may be able to balance things out.
Types of Equity Mutual Funds
Large Cap Mutual Funds
Large-cap mutual funds are equity-oriented MF schemes that invest at least 80% of total assets into large-cap stocks. Large-cap stocks are defined as stocks of the top 100 companies in the stock market by market capitalisation.
Mid-Cap Mutual Funds
Mid-cap funds are equity MF schemes that invest at least 65% of total assets in mid-cap stocks (101st–250th companies by market cap).
Small Cap Mutual Funds
Small-cap funds are equity schemes that invest at least 65% of total assets in small-cap stocks. Small-caps are stocks of companies ranked beyond the 250th rank by market cap.
Multi-Cap Mutual Funds
Multi-caps are equity-oriented MF schemes that invest at least 75% of total assets in large, mid, and small-cap stocks, maintaining a minimum 25% of total asset exposure to each market cap. The rest of the 25% can be invested in equity, money market instruments and other liquid instruments, gold and silver instruments as permitted by the Board and in InvITs, subject to the ceilings laid out in MF Regulations with respect to the respective asset class..
Flexi-Cap Funds
Flexi-cap funds are equity MF schemes that invest at least 65% of total assets in equities and equity-related instruments, without any restrictions on the minimum market-cap allocations. In other words, flexi-cap funds can decide the composition based on the market conditions and fund managers perspective.
Focused Funds
Focused funds is a type of equity mutual fund that invests in a maximum of 30 stocks. The fund invests at least 80% of total assets in equities and equity-related instruments, but selects stocks based on the focus mentioned in the SID (Scheme Information Document).
Sectoral Mutual Funds
Sectoral funds are mutual fund schemes that invest at least 80% of total assets in a specific sector. Banking and pharma funds are some examples of sectoral funds.
Thematic Mutual Funds
Thematic funds invest based on a selected theme. They allocate 80% of total assets in equities focused on a single theme like consumption or AI.
Hybrid Mutual Fund Terms
Balanced Advantage Funds (BAFs)
Also known as dynamic asset allocation funds, BAFs invest in equity/debt that is managed dynamically. They follow a dynamic allocation strategy where the fund manager can adjust equity and debt allocation based on market conditions.
Aggressive Hybrid Funds
Aggressive hybrid funds invest 65%–80% of total assets in equity, and the rest goes into debt between 20 and 35% of total assets. This high equity allocation may make them suitable for investors with a high risk appetite. For tax treatment, aggressive hybrid funds are treated as equity-oriented schemes.
Conservative Hybrid Funds
Conservative funds are a type of hybrid mutual fund that primarily invests in debt, maintaining a 75%–90% of total assets allocation to debt instruments like bonds. They can allocate 10%-25% of total assets in equities and equity related instruments as well. Since the debt allocation is higher at all times, these funds may be a suitable option for conservative investors seeking relative stability.
Debt Mutual Fund Terms
Liquid Funds
Liquid funds are debt MF schemes that invest in instruments with a short-term maturity of up to 91 calendar days. They can be redeemed easily, and investors often use them to park emergency funds.
Ultra Short Term Funds
These funds invest in debt and money market instruments with a Macaulay duration between 3 to 6 months.
Short-Term Funds
Short-term funds are schemes that invest in debt and money market instruments with a Macaulay duration between 1 to 3 years.
Long Term Funds
Long-term funds invest in debt and money market instruments that have a longer Macaulay duration of greater than 7 years.
Corporate Bond Funds
These funds invest at least 80% of total assets in the highest-rated corporate bonds (AA+ and above).
Gilt Funds
Gilt funds are schemes that invest at least 80% of total assets in government securities across different maturities.
Taxation Terms
Capital Gains Tax
Capital gains tax is the tax applicable to the profits you make from the sale/redemption of your mutual fund units. This tax can be short-term or long-term, depending on the type of fund in question and your holding period.
Short Term Capital Gains (STCG)
STCG is applicable to short-term profits booked on the sale of MF units. For equity funds, STCG is applicable at 20% if units are held for less than 12 months. For debt funds purchased on/after 1st April 2023, STCG is applicable at slab rates, regardless of the holding period.
Long Term Capital Gains (LTCG)
LTCG applies to long-term gains booked through the sale of units after 12 months. For equity funds, it’s applicable at 12.5% above the Rs. 1.25 lakh/year exemption limit. Debt funds (purchased after 1st April 2023) are always taxed at STCG.
Indexation
Indexation was a method used to adjust capital gains from mutual fund redemptions for inflation. However, indexation benefits aren’t available for investments made on/after 1st April 2023.
Mutual Fund Performance Metrics
Compound Annual Growth Rate (CAGR)
CAGR is the average annual rate at which an investment grows over a specific time window(longer than 1 year). It is typically used to assess the growth potential of a fund and assess past performance.
Rolling Returns
Rolling return is a method used to calculate the annualised average returns of a mutual fund scheme across multiple overlapping periods within an extended investment horizon. So it provides a dynamic perspective by assessing overlapping timeframes.
Trailing Returns
Trailing returns measure how the fund has performed between two specific dates (1Y, 3Y, or 5Y). So it sums up the historical performance of the fund.
Yield to Maturity (YTM)
YTM is the estimated return that might be made if a bond is held until its maturity date, expressed as an annual rate.
Modified Duration
Modified duration tells investors how much a bond’s price is likely to change when interest rates increase/decrease.
Regulatory & Industry Terms
Securities and Exchange Board of India (SEBI)
SEBI is the Indian market regulator responsible for the growth and regulation of the Indian securities market. SEBI oversees the Indian MF industry and prescribes its regulatory framework and rules.
Association of Mutual Funds in India (AMFI)
Established in 1995, AMFI is a non-profit self-regulatory body that represents all SEBI-registered AMCs. AMFI is responsible for promoting best practices in the mutual funds industry. It works closely with SEBI to protect investor interest and ensure compliance with MF regulations.
AMFI Registration Number (ARN)
ARN is a unique registration number issued by AMFI to each mutual fund distributor. It essentially helps confirm the distributor’s authorisation.
Know Your Customer (KYC)
KYC is a mandatory verification process that needs to be completed by the investor before they start investing in a mutual fund scheme. It is a one-time exercise to verify your identity, address, and other details.
Advanced Mutual Fund Concepts
Market Capitalisation
Market capitalisation is the total market value of a company’s outstanding shares. The current share price of the company is multiplied by the company’s total number of outstanding shares to reach the market cap value.
Growth Option
The growth option in a mutual fund scheme allows the profit earned from the investment to be reinvested into the scheme to compound over time.
Dividend Option (IDCW)
From 1st April 2021, SEBI renamed the dividend option to IDCW (Income Distribution Cum Capital Withdrawal). Under the IDCW option, a mutual fund may distribute surplus to investors, depending on availability and trustee discretion. But these payouts are not guaranteed. When IDCW is paid, the scheme’s NAV reduces.
Direct Plan
A direct plan allows you to invest in a mutual fund scheme directly through the AMC. It typically has a lower expense ratio because no sales and distribution commission related expense is charged to the plan.
Regular Plan
A regular plan means investing in a mutual fund scheme through a mutual fund distributor or agent. The expense ratio of regular plans tends to be higher due to distributor related expenses.
Lock-in Period
Lock-in period is the minimum amount of time during which you cannot redeem your investments from a mutual fund scheme. For instance, ELSS funds have a lock-in period of 3 years.
Conclusion
So now you know all the essential mutual fund terminology needed to get started with your investment journey. Just remember, this is just the beginning. This list is not an exhaustive one, and as you learn more about MF, you will likely come across more terms and concepts that need clarity. The key is to stay consistent and not be overwhelmed.
Disclaimer
An Investor Education and Awareness Initiative by Tata Mutual Fund.
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Disclaimer
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