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FAQ

18. Glossary

1) Index Fund
2) Index
3) Benchmark
4) Equity
5) Bonds
6) Rupee Cost Averaging
7) Net Asset Value (NAV)
8) Annualised Rate of Return
9) Bull Market
10) Asset Allocation
11) Compound Interest
12) Interest
13) Entry Load
14) Exit Load
15) Historical Pricing
16) Forward Pricing
17) Mutual Fund
18) How do I know which mutual fund to buy?
19) How risky are mutual funds?
20) Ex-Dividend Date


Q: Index Fund

A: A mutual fund which aims at the lowest cost possible to match the movements in a given index. It is also a passively managed fund.
 
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Q: Index

A: A statistical representation of the price of a group of securities representing a market, a group of markets or a particular sector of a market. e.g. BSE SENSEX, NSE Nifty, NASDAQ index. Indices are an indication of the overall movement of a market.
 
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Q: Benchmark

A: An index that mutual funds measure themselves against. Those that outperform the index are generally considered to be doing well and vice versa.
 
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Q: Equity

A: The part of a company's capital which is owned by its shareholders, commonly known as 'shares'. Equity funds invest in a broad portfolio of shares.
 
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Q: Bonds

A: A security issued by a company or government that promises to give you a fixed sum at a future date in return for a regular, predetermined income till that date. Generally, bond funds do better when bank interest rates are low.
 
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Q: Rupee Cost Averaging

A: A constant investment into a fund at predetermined times such that the investor purchases more units when the price is low and less when it is high. The idea is that the overall cost is lower than if only a lump sum of money was invested at one time.
 
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Q: Net Asset Value (NAV)

A: NAV is the per unit price of a mutual fund. NAV is also the price at which you buy / sell a mutual fund. This price does not include entry or exit loads.
 
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Q: Annualised Rate of Return

A: The return achieved over a period of time expressed as the equivalent annual compounded interest rate which would have achieved this performance. Used more to measure performance over long periods.
 
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Q: Bull Market

A: When the stock market experiences an upward rise in prices.
 
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Q: Asset Allocation

A: The distribution of money in a portfolio to different types of investment in order to minimize risk.
 
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Q: Compound Interest

A: To pay or receive interest on amounts of interest already received. The "power of compounding" can be huge. Check out Fundsupermart.com's Forward Compounder to see just how powerful it is.
 
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Q: Interest

A: The amount of "rent" paid to you for the use of your borrowed money (you receive interest on a bank deposit because the bank is borrowing your money.)
 
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Q: Entry Load

A: The commission that an investor has to pay for purchasing units of a mutual fund. This is a certain percentage that the mutual fund charges to meet its expenses.
 
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Q: Exit Load

A: The commission that an investor has to pay when selling units of a mutual fund. The exit load is applied over the NAV of the fund. Eg: If a mutual fund has an exit load of 2.5% and the NAV of the fund is Rs 10, you will be paid Rs 10 - 2.5% = Rs 9.75 for each unit of the mutual fund.
 
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Q: Historical Pricing

A: "Historic price" means a price calculated by reference to the valuation point immediately preceding the manager's agreement to issue or, as the case may be, to redeem the units in question.

This means that when you buy a fund with historical pricing, you already know what price you are buying and selling the fund at, unlike forward pricing where you will not know. So, if you see that a fund costs Rs 10 today, and you place an order today, your purchase price of that fund will be Rs 10.
 
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Q: Forward Pricing

A: Mutual funds operating on a forward pricing basis means that NAV prices are only calculated at the end of the day after all investments, and the cost of all transaction activities, have been taken into account.

Therefore investors who buy and sell a fund before the close of the dealing day will not know the actual NAV at the point of purchase/redemption.

Confirmed NAV for trades on a particular business day are available at Fundsupermart by 10am the next business day.:

 
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Q: Mutual Fund

A: Think of it as a big pool of money that many people contribute to. This pool of money is invested by professional fund managers into stocks, bonds and other instruments. By contributing to this pool of money (buying 'units' of the mutual fund), you will be given a little piece of the total portfolio (i.e., you OWN a part of the mutual fund). If the value of the investment instruments which the mutual fund invests in increases in value, your mutual fund will be worth more than the price which you bought (i.e., you make money).
 
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Q: How do I know which mutual fund to buy?

A: Your risk tolerance, investment goals, time horizon and expected returns will all come into play. Go to our GETTING STARTED section in FSM School to find out more. After doing that, you should find the fund whose investment objectives match your own. Make use of our FUND SELECTOR and read our fact sheets to compare and contrast the mutual funds available. You may also register as a member and read our RECOMMENDATIONS. Soon you will find one which you are comfortable with. Start with that first. As you gain more confidence and understanding of mutual funds, you may then invest more.
 
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Q: How risky are mutual funds?

A: A fund manager usually invests in many different stocks or bonds, across many different sectors. They do this in order to spread the risk (what is known as diversification).

For example, an equity mutual fund might hold stocks of banks, property companies and manufacturing companies. Any negative developments affecting any one sector are thus limited to only a portion of the mutual fund. There might be positive developments in the other sectors which cancel out the negative effects of the first sector. In this way, diversification minimizes the impact of negative developments and lowers the risks of investment.
 
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Q: Ex-Dividend Date

A: The date on which the distribution amount per unit is deducted from the fund's NAV. The ex-dividend date, also known as the declaration date, is generally the business day after the record date.
 
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