Glossary · 25 terms
Mutual Funds
All mutual funds terms in the EquitiesIndia.com glossary — plain-English definitions written for Indian retail investors.
AMC(Asset Management Company)
An Asset Management Company (AMC) is a SEBI-registered entity that pools investor money, manages mutual fund schemes, and invests on behalf of unitholders according to the stated investment objective of each scheme. In India, prominent AMCs include SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, and Nippon India Mutual Fund.
Arbitrage Fund(Cash-Futures Arbitrage Fund)
An Arbitrage Fund is a hybrid mutual fund scheme that generates returns by simultaneously exploiting price differences between the cash (spot) and futures markets for the same stock, with at least 65% of its assets in equity and equity-related instruments. Despite its equity classification, it has risk-return characteristics closer to a liquid or short-duration debt fund.
AUM(Assets Under Management)
Assets Under Management (AUM) refers to the total market value of all investments managed by a mutual fund scheme or an Asset Management Company at a given point in time. As of early 2025, the Indian mutual fund industry's total AUM crossed Rs 67 lakh crore, reflecting a decade of sustained retail participation.
Direct Plan(Direct Mutual Fund)
A Direct Plan is a variant of a mutual fund scheme that investors can access by investing directly with the AMC — without going through a distributor or intermediary — resulting in a lower expense ratio and correspondingly higher NAV compared to the Regular Plan of the same scheme. SEBI mandated the creation of direct plans for all schemes effective January 1, 2013.
ELSS(Equity Linked Savings Scheme)
Equity Linked Savings Scheme (ELSS) is a type of diversified equity mutual fund that qualifies for tax deduction under Section 80C of the Income Tax Act, up to Rs 1.5 lakh per year, and comes with a mandatory three-year lock-in period — the shortest among all 80C instruments. Returns are market-linked and not guaranteed.
ETF(Exchange Traded Fund)
An Exchange Traded Fund (ETF) is a basket of securities that tracks an index or asset class and is listed and traded on a stock exchange like NSE or BSE, just like individual shares, allowing investors to buy and sell units throughout the trading day at market prices.
Exit Load(Redemption Load)
Exit Load is a fee charged by a mutual fund scheme when an investor redeems units before a specified holding period, expressed as a percentage of the redemption amount. It is designed to discourage short-term redemptions and protect long-term investors from the transaction costs associated with high portfolio turnover.
Expense Ratio(TER)
The expense ratio is the annual fee charged by a mutual fund scheme to cover its operating costs, expressed as a percentage of the scheme's daily average net assets. SEBI caps expense ratios for equity schemes at 2.25% for the first Rs 500 crore of AUM, with the cap declining as AUM increases.
Flexi Cap Fund(Flexicap Fund)
A Flexi Cap Fund is an open-ended dynamic equity scheme required by SEBI to invest a minimum of 65% in equities across large, mid, and small cap companies without any fixed allocation to a specific market cap segment, giving fund managers complete flexibility to move across the market cap spectrum based on market conditions and valuations.
Growth Option(Growth Plan)
The Growth Option is a dividend reinvestment variant of a mutual fund scheme where any income earned or profits realised by the fund are not distributed to investors but instead retained within the scheme, causing the NAV to compound over time. It is the most common choice for long-term wealth creation investors.
Hybrid Fund(Balanced Fund)
A Hybrid Fund is a mutual fund scheme that invests in a combination of equity and debt instruments, aiming to provide growth through equity exposure and stability through debt allocation. SEBI defines multiple hybrid sub-categories based on the equity-debt allocation range, including Conservative Hybrid, Balanced Hybrid, Aggressive Hybrid, and Dynamic Asset Allocation funds.
IDCW Option(IDCW)
IDCW, which stands for Income Distribution cum Capital Withdrawal, is the mutual fund option (formerly called the Dividend option) where the scheme periodically distributes a portion of its profits or capital to investors as payouts, causing the NAV to fall by the distribution amount on the record date. SEBI renamed the Dividend option to IDCW in October 2021 to reflect that distributions can include return of capital.
Index Fund(Passive Fund)
An Index Fund is a passively managed mutual fund scheme that replicates the composition and weightage of a specific market index — such as Nifty 50 or Sensex — by holding the same securities in the same proportions, aiming to deliver returns in line with the index rather than outperforming it.
Large Cap Fund(Large Cap Equity Fund)
A Large Cap Fund is an open-ended equity mutual fund scheme that must invest a minimum of 80% of its assets in equity and equity-related instruments of large cap companies — defined by SEBI as the top 100 companies by full market capitalisation, ranked by AMFI — offering relatively stable equity exposure.
Liquid Fund(Liquid Debt Fund)
A Liquid Fund is an open-ended debt mutual fund scheme that invests in money market instruments and debt securities with a residual maturity of up to 91 days, offering high liquidity, relatively stable returns, and next-day redemption proceeds. SEBI mandates that liquid funds cannot invest in illiquid assets exceeding specified limits.
Mid Cap Fund(Mid Cap Equity Fund)
A Mid Cap Fund is an open-ended equity mutual fund scheme required by SEBI to invest a minimum of 65% of its assets in mid cap companies — defined as those ranked 101st to 250th by full market capitalisation as per AMFI — offering potentially higher long-term returns than large-cap funds at higher volatility.
NAV(Net Asset Value)
Net Asset Value (NAV) is the per-unit market value of a mutual fund scheme, calculated by dividing the total net assets of the scheme by the number of outstanding units. In India, SEBI mandates that AMCs publish the NAV of all open-ended schemes by 11 PM on every business day.
NFO(New Fund Offer)
A New Fund Offer (NFO) is the initial launch of a new mutual fund scheme by an AMC, during which units are offered to investors at a fixed price — typically Rs 10 per unit — for a specified subscription period before the scheme is closed and units begin being issued at NAV.
Overnight Fund(Overnight Debt Fund)
An Overnight Fund is an open-ended debt mutual fund scheme that invests exclusively in overnight securities — instruments maturing the next business day — making it the lowest risk debt category with virtually no credit risk, no interest rate risk, and high liquidity.
Regular Plan(Regular Mutual Fund)
A Regular Plan is a variant of a mutual fund scheme sold through distributors, brokers, and banks, where the AMC pays a trail commission to the intermediary from the scheme's assets, resulting in a higher expense ratio and lower NAV compared to the Direct Plan of the same scheme.
SIP(Systematic Investment Plan)
A Systematic Investment Plan (SIP) is a method of investing a fixed amount in a mutual fund scheme at regular intervals — typically monthly — allowing investors to build wealth gradually through disciplined, automated contributions. AMFI data showed SIP inflows reached over Rs 26,000 crore per month in early 2025, reflecting its mass adoption in India.
Small Cap Fund(Small Cap Equity Fund)
A Small Cap Fund is an open-ended equity mutual fund scheme required by SEBI to invest a minimum of 65% of its assets in small cap companies — defined as those ranked 251st and below by full market capitalisation as per AMFI — offering the highest long-term return potential in the equity fund universe but also the highest volatility and liquidity risk.
STP(Systematic Transfer Plan)
A Systematic Transfer Plan (STP) is a facility that allows an investor to automatically transfer a fixed or variable amount from one mutual fund scheme to another within the same AMC at regular intervals. It is commonly used to gradually shift a lump sum from a liquid or debt fund into an equity fund, reducing timing risk.
SWP(Systematic Withdrawal Plan)
A Systematic Withdrawal Plan (SWP) is a facility that allows a mutual fund investor to redeem a fixed amount from their scheme at regular intervals — monthly, quarterly, or otherwise — providing a structured cash flow from accumulated investments. It is widely used by retirees in India as an alternative to annuity products.
Tracking Error(Active Risk)
Tracking Error measures the deviation between the returns of an index fund or ETF and the returns of its benchmark index over a given period, expressed as the annualised standard deviation of the return difference. A lower tracking error indicates that the fund more faithfully replicated the benchmark's performance.