Mutual Fund Glossary

Here is an exhaustive list of frequently used terms associated with mutual funds and what they mean:-

Absolute Return

Absolute Return refers to the net yield or income that you earn from investing in an asset over a certain time period. It is mentioned as a percentage and takes into account the gains as well as losses.

For example, if you invest Rs. 5,000 in a Mutual Fund today and five years down the line, you receive Rs. 6,000, then the absolute return is 20%.

It is calculated as:
Difference between the (invested amount and current value) / The amount of investment

Account Statement

An Account Statement contains the details of all the transactions related to an account for a specified time period. It can be for a particular month, quarter or a year. Account statements contain information such as the opening balance, debits (or payments), credits (receipts) and the closing balance. A common example is a statement issued by banks to their customers.

For example, Asset Management Companies, i.e. AMC’s give an Account Statement to their customers with a record of all the transactions within that period, units, transaction date, folio details, Fund Name, etc. for your record. The statement is generated at the duration requested, i.e. if you need monthly statements, the same is sent to you, either in hard copy or via email, as desired.


Alpha indicates the additional or excess return that you earn from an investment when compared to the average or a benchmark. So, alpha is the excess return that the fund manager manages to generate from your investment as compared to the underlying benchmark return.

For example, if you have invested in a mutual fund which gives an annualized return of 15% as compared to a benchmark return of 11% by the underlying benchmark, say NIFTY, then 4% (15% - 11%) is your alpha return.

Annualized Returns

The term “annualize” means to project a yearly outcome on the basis of the current performance. The annualized return is just an extrapolated data of the particular tenure that is mentioned.

For example, if a particular asset has given a return of 5% in a period of 3 months, then the annualized return is 20%.

It is calculated as:
(Current Return/ Time period in which the mentioned returns have been achieved) *12

Arbitrage Fund

Arbitrage Funds are mutual funds which capitalize on the price difference for the same security or asset across various markets such as cash and derivatives (or even across the stock exchanges). There are dedicated specialists called Fund Managers who handle these funds.

For example, a fund manager can buy a particular stock from the derivatives market at Rs 110 and then sell the same stock in the cash market at Rs 120. In this process, the investor earns Rs. 10 per stock. The difference in the price is the arbitrage spread and a fund which takes advantage of the price difference of the two is called an Arbitrage Fund.

Asset Allocation

Asset Allocation refers to the process through which an investor decides how to apportion the total investable amount in different asset categories according to his risk profile. Investors can choose from a wide range of categories such as equity mutual funds, debt based mutual funds, gold, real estate, cash etc. Factors such as age, lifestyle, financial goals and risk appetite of the investor play an important role in asset allocation. A well-designed asset allocation plan helps to minimize the risk of the overall portfolio.

For example, a moderate investor in early 30s might have 30% equity, 40% debt and 30% in real estate and gold as his asset allocation requirements. He would then have to balance his portfolio according to his asset allocation so that it is as close to his desired Asset Allocation as possible.

Asset Allocation Fund

A balanced fund which allows the investors to have a mix of various asset categories in the investment portfolio is called an Asset Allocation Fund. The fund manager takes all the necessary decisions for the Asset Allocation according to the investment objective of the fund.

The common asset categories include stocks (domestic and foreign), bonds, real estate and cash equivalents. Some of these funds fix the asset allocation amongst the various asset classes while others give the flexibility to the investor to make changes in the proportions basis the market conditions.

There are 2 types of Asset Allocation Fund:

Dynamic Asset Allocation Fund where the proportion of allocation in equity and debt changes as per the market fluctuations.

Static Asset Allocation Fund where the proportion of allocation in equity and debt is predetermined and remains the same, irrespective of the market fluctuations.

An Asset Allocation Fund follows equity taxation with at least 65% exposure in equity.

Asset Management Company (AMC)

An Asset Management Company is a fund house which manages a pool of funds (collected from investors) with the objective of maximizing the returns. It designs diversified portfolios and invests across multiple asset categories such as stocks, bonds, etc. Investors benefit from the professional expertise of such companies and are able to get exposure to a well-designed and diversified portfolio of funds. The AMCs float the mutual funds for investors to invest.

For example, HDFC Asset Management Company has multiple mutual funds for investors to buy like HDFC Equity Fund, HDFC Top 100 Fund, HDFC Income Fund, HDFC TaxSaver Fund, etc. Likewise, other AMCs like Franklin Templeton Asset Management Company has various funds like Franklin India Bluechip Fund, Franklin India Prima Fund, Franklin India Prima Plus Fund, etc.

Assets Under Management

Assets Under Management or AUM is the cumulative market value of all investments managed by a portfolio manager, a mutual fund company or any other such financial institution.

For example, when you invest in a particular mutual fund, there would be other individuals or investors who would put their money into that fund as well. So, when you add all the amount invested in that mutual fund, you arrive at its Assets Under Management. AUM is taken as the yardstick to measure the quantum and success of a fund house.

The AUM is calculated for each and every fund and for each and every fund house as well. So, one can easily check the performance of a fund with its AUM across its peers.

For example, the AUM of a particular fund is mentioned as Assets Under Management= Rs ABC crores (As on Date DD-MM-YYYY)

Balanced Fund

Balanced Fund is a hybrid fund which splits the total invested amount between equity and debt in a pre-determined and fixed proportion. Some of these funds might have a clause to cross the pre-determined limits by a certain margin basis the market dynamics. In some funds, the fund manager invests as per their discretion and the market movements keeping the investment objective in mind.

These funds are a perfect choice for investors who want capital appreciation but only want a limited degree of risk. Mutual Funds and ULIPs both offer balanced funds.

Balanced Mutual Funds usually have at least 65% exposure in equity to have equity taxation. The fixed income portion in Balanced Funds helps investors mitigate the equity related risks.

Bear Market

A market is referred to be “bearish” or a bear market when the price of securities is in a declining mode. It is usually regarded that a fall of more than 20% in the security prices for a continuous period of two months indicates a bear market.

A bear market is usually followed by a lot of stock selling as people fear that the prices might go down even more. If a bear market continues for a very long period of time, it might lead to an economic depression. The opposite of a bear market is called a bull market.




Benchmark refers to the standard or yardstick against which the performance of other securities or mutual funds is measured. As per the SEBI guidelines, all fund houses need to mandatorily declare their benchmark index. If a mutual fund delivers a higher return than its benchmark, then it is said to have out-performed. Otherwise, it is a case of under-performance.

They are generally market indices such as Nifty or Sensex. Other benchmarks could be CNX Midcap, CNX Smallcap, etc.

Out-performance of a particular fund= when the fund performs > benchmarked index
Under-performance of a particular fund= when the fund performs < benchmarked index


Beta is used to measure the degree of risk or volatility associated with a fund, stock or portfolio as compared to the overall market or a particular benchmark.

The beta value of less than 1 = The fund or stock is less risky than the market.
The beta value of more than 1 = The fluctuations in the stock value is higher than the market.

For example, if the beta is 1.2 and the market moves by 10%, then the stock in question will move by 12%.

Blue Chip Stock / Fund

These are shares of large, reputed and well-established companies that have a long history of strong financial performance. These companies are known in the market for robust investment strategies, continuous dividend payouts and industry dominance.

Blue Chip stocks are more resilient in nature and are generally able to sustain even in volatile or tough market conditions. These stocks are priced at a premium in the market as the return expectation is also higher.

Examples of some bluechip stocks in India are Tata Consultancy Services, Reliance Industries, ITC Limited, HDFC Bank, Coal India, etc.

Mutual Funds which invest in Blue Chip stocks are known as a Blue Chip Fund or a Growth Fund.


A Bond is an I.O.U or in other words an instrument of indebtedness. It is a fixed-income instrument that depicts that the investor has lent money to the issuer of the bond.

Bonds are generally issued either by the government or corporate entities to raise money. It has an end or maturity date when the principal loan amount becomes payable to the investor. Bond investors either receive interest (called coupon rate) or earn returns when the bond is issued at a price which is lesser than the face value. Thus, they are debt certificates with a fixed interest and a specific maturity date.

For example, in India, there are 6 types of Bonds, namely: Public Sector Bonds, Tax Savings Bonds, High Yield Bonds, Government Bonds, Municipal Bonds and Corporate Bonds.

Bond Fund

Bond Fund refers to those mutual funds which invest money primarily in bonds and other debt securities. The fund manager is tasked with the responsibility of generating a steady stream of income for the investors by investing in categories such as GSecs(Government Securities), bonds, debentures, etc.

These funds generally pay dividends on a periodic basis in addition to some capital appreciation. Bond Funds are offered by Mutual Funds, ULIPs and other such investment firms. There are various types of bond funds such as short-term investments, medium to long-term investments, government securities, etc.

A bond fund has debt taxation and an investor gets indexation benefit for being invested for a period of minimum 3 years.

BSE Index

The Bombay Stock Exchange (BSE) Index comprises of 30 of the largest, well-performing and financially strong listed companies. It is calculated on the free-float capitalization method and is an indicator of the country’s economic scenario and market sentiments. This is the oldest and one of the most commonly referred benchmark index of India.

The S&P BSE Index is commonly known as the Sensex or the Sensitive Index. It comprises of India’s 30 most traded companies and measures their price-sensitive indices. The base value of the Sensex was considered to be 100 on April 1, 1979, and has been published thereafter.

Bull Market

When the majority of the share prices in the markets are rising, it is said to be a bull market. Such a market is characterized by investor optimism and confidence and higher return expectation.

A market which is in a “bullish” mood encourages investors to put their money into stocks and leads to a lot of buying in the market. This trend can last for a couple of months or even across multiple years. The opposite of a bull market is a bear market.


Compound Annual Growth Rate (CAGR) is the average rate of returns that an investor earns from the money invested over a certain period of time. Absolute returns do not take into consideration an important factor – time value of money.

CAGR includes this factor in its calculation and is considered a more holistic statistic. This is an important parameter to consider while making any investment decision such as mutual funds. It enables an investor to compare various schemes across different time periods.

Capital Gains

Capital gain refers to the profit that you make from selling an asset such as investment, mutual funds or property. It is calculated as the difference between the amount invested and the sale value of the asset.

There are two types of capital gains: short- term and long-term.
Short-term capital gains (STCG) are for assets which you have held for a period lesser than:

  1. One year for equity investments like equity mutual funds, stocks, etc.̥
  2. Two years for real-estate investments
  3. Three years for debt mutual funds
  4. Long-term capital gains (LTCG) are for assets which you have held for a period more than:̥
  • One year for equity investments like equity mutual funds, stocks, etc.
  • Two years for real-estate investments
  • Three years for debt mutual funds
  • For capital gains, STCG or LTCG, taxation applies to the products for their duration of the investment.

For example, if an equity or stock investment is redeemed within one year of its purchase, then the difference between the sale price and the purchase price for the specific number of units would be considered as STCG and would be taxed accordingly.

Capital Gains Statement

As per the Income Tax Regulations, the tax applicable on capital gains needs to be filed in the same year as the same. The details of the capital gains earned by an investor are available in a document called the Capital Gains Statement. It is an important document to understand the investor’s tax liability.

The Capital Gains statement can be taken from the concerned fund house where the funds were invested. They are also available with the R&T Agents such as CAMs, Franklin and Karvy.

This statement gives details about short-term and long-term capital gains for each and every product as well as its tax implications.

Capital Gains Tax

The tax that is levied on the capital gains is referred to as Capital Gains Tax. Capital Gains are the earnings or profits that one earns from the sale of certain specific assets or investments. The tax rates depend on whether the assets or investments were classified as short-term or long term and whether it is in equity or debt or any other asset class.

Capital Gains tax applies to capital assets like:

  1. Equity mutual funds or any listed stock̥
  2. Listed debt securities like bonds, debentures, etc.̥
  3. Zero coupon bonds

Certificates of Deposit (CDs)

Certificate of Deposit is a kind of money market instrument that is issued by banks and specific other non-banking financial institutions such as IFCI, etc. against the funds that are deposited with them. They are short-term securities which have a pre-defined rate of interest and are issued for a specific tenure.

CDs can be issued to corporations, individuals, funds, trusts, associations etc. The Reserve Bank of India releases guidelines regarding CDs from time to time.

Close- Ended Schemes

Close-Ended schemes are mutual funds wherein investors can enter only at the time of NFO (New Fund Offer). They have a predetermined maturity period, after which the scheme can either become open-ended or payback the investors as per the applicable NAV.
Units under this scheme are usually listed on the stock market after the initial issue period of the NFO.

Commercial Paper

Commercial Paper is an unsecured, short-term, money market instrument which was introduced in the year 1990. It is issued through a promissory note.

This instrument enables the issuers to diversify their sources of short-term money borrowing. Corporates, primary dealers and financial institutions which meet the eligibility criteria can issue commercial papers in India.

The maturity period for Commercial Paper ranges between seven days to one year from the date of issuance.

Convertible Debentures

Convertible debentures are a kind of debt securities or loan which have the option to convert into equity shares or stock after the completion of a certain time period.

Usually, the right of conversion lies solely with the holder. However, under some special circumstances, even the issuer can exercise this option.

There are two types of convertible debentures:
Fully convertible debentures and
Partly convertible debentures

Coupon Rate

When someone invests in bonds, they are assured of a fixed rate of interest, irrespective of the market conditions. This rate of interest or yield is called the coupon rate.
The coupon rate is calculated on the face or par value of the bond.

For example, if you purchased a 10-year – Rs 3000 bond with a coupon rate of 10%, then you will receive Rs. 300 (i.e. 10% of 3000) every year for the duration of 10 years.

Cut off Time

At the time of buying or selling mutual funds, one needs to take into consideration the applicable Net Asset Value (NAV). The NAV allotment is dependent on the time of application and fund submission. This time is referred to as the cut-off time.

The cut-off time varies for debt, equity and liquid funds.

For instance, in the case of liquid funds, the cut-off time is 2 pm. If someone invests in a liquid fund any time before this cut-off time, they will be allotted the NAV of the previous day.

If the application is submitted after 2 pm, then the NAV of the current day is applicable.

The Turn-Around-Time (TAT) for the redemption amount to be credited, the transaction date is of utmost importance and the cut-off time decides the same.


Debentures are a type of debt-instrument with a long term horizon. They are unsecured in nature as there are no collaterals, liens or hypothecation. It allows the issuer to borrow funds from the public.
The debenture holders are treated as creditors for the company issuing the debenture. Debentures have a pre-defined maturity period and also state in the beginning the mode of interest payment to the holders.
There can be different categories of debentures depending upon their convertibility, security, redemption and registration.

Debt / Income Funds

Debt is giving a loan to someone for a specific time at a predefined rate. So, mutual funds which invest in fixed income debt instruments are called Debt Funds. Thus, Debt Funds refer to those mutual funds which invest majorly in debt based or fixed-income securities, like government securities, Treasury Bills, Gilt Funds, corporate bonds, etc.

Debt or Income Funds typically have a 100% exposure in debt. However, hybrid funds with more than 35% exposure in debt instruments also follow debt taxation and can be called Debt Funds, like MIP(Monthly Income Plan).

Usually, Debt Funds have a predetermined maturity date and offer investors fixed interest. Investors of such funds have two sources of earnings:
1.Interest income and ̥
2.Appreciation in capital due to market dynamics.̥

Direct Plans

In Direct Plans, investors can directly invest in the fund from the fund house or the AMC. They need not go through any distributor or agent. As a result, investors can save on distribution fees that are paid out to the intermediaries.
As compared to regular plans, the expense ratio for direct plans is lower. For investors who are well-versed with the market and can choose and track their funds, direct plans offer a higher return.

P.S Goalwise now offers goal-based investing in direct mutual funds free of cost


Distributor refers to an intermediary between the investor and the issuer. He or she can be an individual or an entity and seeks to facilitate the process of buying and selling of stock, mutual funds or any other investment instrument.

Distributors act as an advisor who analyzes the investor’s financial goals and risk profile and then suggests them the most appropriate investment option. They earn a commission or fee for enabling such transactions.


Diversification follows the principle of not putting all your eggs in one basket. It is the process of investing in different securities and asset categories in order to minimize the overall risk involved. With this practice, the poor performance of one stock, sector or asset class does not significantly damage the total portfolio’s performance.

Diversification can be done across asset classes or even with asset classes with market capitalization. It can be done by the fund manager of a diversified mutual fund keeping the investment objective in place or by the investor as well.

Dividend Distribution Tax

Dividend Distribution Tax or DDT is the tax rate levied by the Indian government under section 1150 on domestic firms that issue a dividend to the investors. The DDT is applied on the grossed-up value of dividend declared and paid before the same is distributed to the investors.

Important things to know about DDT for Mutual Funds

DDT is applicable on:

  1. Debt Mutual Funds at a rate of 25% + surcharge and cess, 29.12%̥
  2. Equity Oriented Mutual Funds at a rate of 10% + surcharge and cess, i.e. 11.648%̥
  3. The DDT is paid by the AMC before paying out the dividend to the investor. So, the dividend is exempted from tax in the hands of the investor.̥
  4. DDT is applicable for both dividend payout and dividend reinvestment options.̥

Dividend Plan

Most mutual funds have 3 types of investment options- Dividend Payout, Dividend Reinvestment and Growth.

The Dividend Payout option is also called Dividend Plan. Thus, in a Dividend Plan, the fund pays out a portion of the investment to the investor in the form of dividends, that are declared by the Mutual Fund from time to time.

Both equity as well as debt plans offer dividend to the investor from the portion of realised profit of the investment corpus. Dividend Distribution Tax is applicable for dividend payouts.

Lots of people opt for dividend option in their investment portfolio to receive interim cash flow in their portfolio. It is important to note that dividends are not guaranteed in dividend plans.

Dividend Reinvestment Plan

Most mutual funds have 3 types of investment options- Dividend Payout, Dividend Reinvestment and Growth.

In a Dividend payout plan, the mutual fund pays out a portion of the investment to the investor in the form of dividends that are declared by the Mutual Fund from time to time. So, when this dividend is not paid out to the investor but is reinvested in the fund by way of buying fresh units at the current NAV is called Dividend Reinvestment.

Both equity as well as debt plans offer dividend to the investor from the portion of realised profit of the investment corpus. Also note that dividends are not guaranteed in dividend plans.


Dividends refer to a pay out which is paid by a company to its stockholders from the earnings or profits. Though mostly they are distributed in the form of cash, sometimes dividends can also be given in the form of shares etc.

Dividend is declared as a percentage of the face value of the shares.

For example, if a company declares 50% dividend and the face value of its share is Rs. 10, the amount of dividend per share owned is Rs 5. Usually companies declare dividend on an annual basis.

Electronic Consolidated Account Statement (eCAS)

A Consolidated Account Statement collates the details of all holdings and transactions of an investor across depository accounts (NSDL, CDSL) and mutual funds in a single document. It includes details of all dealings including purchase, sale as well as switch made by the investor in a particular month.

Consolidated Account Statement in a digital form is called as Electronic Consolidated Account Statement (eCAS) and investors can now choose to receive it through email instead of physical post.

Entry Load

Erstwhile, some mutual Fund investors needed to pay a fee to the company when they join a particular mutual fund scheme. Thus, the amount charged at the time of joining or entering a scheme is called as the Entry Load. Mutual Fund companies used to charge this amount to cover for distribution expenses.

As per the SEBI guidelines released in 2009, no entry load is applicable if the investor joins the scheme directly without any distributor. However, if the investor joins a scheme through a distributor or a broker, the investor can be charged for the advice. However, there will be no charge for “entering” a scheme by an AMC as Entry Load!

Equity Linked Savings Scheme or ELSS

An Equity Linked Savings Scheme (ELSS) is a open-ended and diversified equity mutual fund which offers tax savings to its investors upto Rs 1.5 lakhs per annum. In fact, it is the only mutual fund available for a tax deduction U/S 80C.

Prior to Budget 2018, ELSS funds were completely tax free. However, from January 31st, 2018, there is a 10% tax on the long-term capital gains in excess of Rs 1 lakh per annum, without indexation benefit.

ELSS funds have a lock-in period of three years. Like other equity based mutual funds, ELSS investors can choose between dividend or growth option.

Equity Funds

Equity Funds are a type a mutual funds which primarily invests in equity and stocks. Equity funds have an investment objective of high growth. They are categorized into different market capitalizations, like:

  1. Large cap funds, which primarily invests in companies with a large market capitalization
  2. Mid cap funds, which primarily invests in companies with a medium market capitalization
  3. Small cap funds, which primarily invests in companies with small market capitalization
  4. Micro cap funds, which primarily invests in companies which are very small
  5. Multi cap funds, which invests in companies of various market capitalizations


Exchange Traded Funds or ETFs is a marketable security which is traded in the stock market. It consists of a portfolio of stocks which is similar to the composition of market indices such as BSE Sensex, CNX Nifty, etc. The trading value of an ETF is dependent on the NAV (Net Asset Value) of its underlying stock. They were first launched in the year 2001 in India.

Exit Load

Mutual Fund houses collect a fee from the investors at the time of joining or leaving a scheme. This fee is referred to as a “load” and the amount charged while exiting a scheme is called as the Exit Load.
The objective behind this charge is to dissuade the investors from making frequent withdrawals or discourage them from exiting a mutual fund. Exit Load is expressed as a percentage and is calculated on the NAV applicable on the day of transaction.

For example, some funds have an exit load for exiting a scheme within one year of its purchase.

Expense Ratio

Expense Ratio refers to the amount charged by an investment house to manage the investor’s portfolio. It is also known as Management Expense Ratio (MER).

The amount collected as expense ratio is used for various operations expenses such as legal fees, administration and management costs, advertising related expenses etc. Expense Ratio is calculated by dividing the total expenses of the fund by the Assets under Management(AUM). The Expense Ratio is expressed as a percentage.

For example, if you have invested Rs 1 lakh in Mutual Funds and the expense ratio is 1%, then you need to pay Rs 1,000 to the investment house.

Face Value

Face Value refers to the value as printed or mentioned on the face of an investment, or security certificate. It is the nominal value of a share. It is also called as the “par value”. The face value of a share does not change unless the issuer decides to split the stock. Dividend payouts to investors is calculated on the face value.

First-In First-Out (FIFO)

First-In, First-Out is a way of asset management and inventory valuation. In the parlance of stock or mutual fund transactions, it implies that at the time of a sale, the shares or units purchased first will be sold first. It is important to maintain a track of the date of acquisition of units, as they have a bearing on the tax obligations when sold as per FIFO.

Floating Rate Bonds/ Debt

Floating Rate Bonds are bonds that have a fluctuating interest rate. The rate of interest changes in line with the market volatility or any other such external factor. They are opposite in nature to the Fixed Rate Bonds wherein the coupon percentage remains constant throughout the entire tenure.
Indexed Bonds are an example of Floating Rate Bonds.


A folio is an account with an asset management company ( AMC) in which your investments from the AMC are held. A folio number is which is a unique identification for a folio is assigned when a mutual fund investor makes first investment with the fund.. The folio number can be used to keep track of how much money investor has placed with the fund, transaction history and contact details.

Fund Category

Fund Categories help in differentiating mutual funds on the basis of factors such as scheme objective, core investment criteria or features, method of funds management etc. This detailed categorization enables investors to choose the right funds or schemes as per their financial goals.

Additionally, it helps them to balance their overall portfolio by doing a proper mix and match of various funds categories.
Mutual Funds can be categorized on the basis of their:-

Asset Class

  1. Equity Funds
  2. Debt Funds
  3. Liquid Funds
  4. Hybrid Funds ̥

Type of fund management

  1. Active funds
  2. Passive or Index funds


  1. Open ended funds
  2. Close ended funds
  3. Interval funds

Investment objective

  1. Tax saving funds
  2. Growth funds
  3. Income funds
  4. Capital protection funds
  5. Fixed Maturity Funds (FMPs)̥
  6. Risk categories
  7. High risk funds
  8. Medium risk funds
  9. Low risk funds
  10. Very low risk funds

Other specific objective funds

  1. Sectoral funds
  2. Fund of funds
  3. Emerging market funds
  4. Real estate funds
  5. International or global funds
  6. Asset Allocation funds
  7. Exchange traded funds, etc

Equity Funds can be further categorized according to their Market capitalization like:-

  1. Large Cap funds
  2. Mid cap funds
  3. Small cap funds
    The most common types of fund categories are equity funds, debt funds, balanced funds, liquid funds, etc.

Fund Manager

A person who is tasked with the responsibility of managing the portfolio of an investment house is called as the Fund Manager. He or she oversees the buying and selling decisions for the concerned portfolio and seeks to maximize the client’s wealth. One fund can be managed by a single fund manager or a team of fund managers.

Fund of Funds

Fund of Funds (FOF) refers to an investment fund scheme which invests in other investment funds.

In the context of Mutual Funds, rather than directly investing in equity or bonds, the fund manager in FOF holds a portfolio of other mutual fund schemes. It is sometimes also referred to as “Umbrella Fund”.

A fund manager of a FOF scheme may choose to invest in mutual fund schemes of the same AMC or different, as long as it suits the needs of the investment objective of the investors. FOF schemes can be either domestic or overseas funds.
A popular example of fund of fund scheme are Gold Funds, International Funds, etc.


RBI in addition to being the banker to all banks, is also the banker to the Government of India. So, when the Government of India requires money, they borrow it from Reserve Bank of India.

So, in order to lend money to the Government of India, RBI in turn borrows it from commercial banks, primary dealers, insurance companies, etc. In lieu of the money borrowed, the RBI issues government securities or GILTs to them with a specific tenure.

As they are issued by the government they are considered extremely safe with no risk of default. Depending on the tenure, they are categorized into short-term or long-term securities.

GILT Funds

GILT Funds are those funds which invest their corpus only in government securities or GILTs. When the government is in need of funds, it approaches the Reserve Bank of India (RBI). In order to lend money, RBI collects money from entities such as banks, insurance companies, etc. and issues them government securities in return. These government securities are purchased by Fund managers of GILT Funds.

As these funds invest in low-risk debt, they are an ideal choice for investors who have a limited risk appetite and are comfortable with modest returns. However, GILTs are not guaranteed and the returns fluctuate highly with the change in interest rates in the market.

Global Funds

The objective of global funds is to ascertain the best investments across the world and seek the benefit of global diversification. Global Funds invest in foreign entities in addition to the home market investment. These mutual funds enable investors to circumvent volatility in the domestic market.

Global Funds are different from international funds as the latter only invests in international markets whereas global funds invest in all markets including the home country.

Gold Fund

Gold Fund is an open ended mutual fund or an ETF (Exchange Traded Fund) that puts its corpus majorly in gold producing (or other related ancillary activities) entities or bullion. The ones which invest in bullion or physical gold provide investors the chance to buy pure gold at a lower cost.

There are various types of Gold Funds such as Gold Mining Funds, Gold Fund of Fund and Gold ETFs. It is easier to invest in a Gold Fund rather than holding physical gold. Gold Funds suit those investors who have an appetite or desire for gold.

Growth Fund

Mutual Funds can be classified into two broad categories basis the payouts they offer – Dividend and Growth.

Growth Funds are funds which have the primary objective of appreciating the capital. They do not offer any dividend payouts to the investors. In case of growth funds, the earnings or profits are reinvested by the fund into buying more stocks. As the returns are compounded, such funds are likely to generate more earnings in the long run.

Guaranteed Returns

Guaranteed Returns are those returns that a company or fund house will compulsorily pay to its investors. This term should not be confused with “Assured Returns”. Though assured returns are also promised in nature, it may still not be paid out if the company runs into financial troubles. On the other hand, in case of guaranteed returns there is no scope for non-payout.

Some examples of guaranteed returns include Public Provident Fund, Post Office MIS, Bank Fixed Deposits, etc.for the tenure of investments.


A guardian refers to an individual who has been legally entrusted with the responsibility of another person. It is usually done in case of minors or people who are unable to take care of themselves.

A Guardian manages the assigned person’s financial affairs. If the minor (or any such person) earns any income, it is not clubbed with the guardian’s income for taxation purposes.

Hedge Fund

Hedge means to safeguard. So, a Hedge Fund is a fund with an investment objective to safeguard the returns of the portfolio.

Hedge Funds are those mutual funds which pools in money from banks, insurance companies, HNIs and other accredited investors and invest across various asset categories. Usually they have complex portfolio creation techniques and risk management principles. They often work as overseas investment firms. These are alternative investment funds.

Holding Period

Holding period refers to the time gap between the purchase and sale of an asset, security or investment. In other words, it is the duration for which the investor holds or owns a particular investment. This is an important factor to consider as it impacts the tax calculations for the investors.

For example, in debt funds holding period of more than 3 years is taken as long-term where indexation benefit is applied. Whereas, for equity mutual funds, holding period of less than 12 months classifies as short-term and attracts Short-Term Capital Gains tax.


IFSC or Indian Financial System Code is an 11-digit alphanumeric code. Its objective is to identify bank’s branches which are a part of the NEFT network and facilitate digital fund transfer. Each branch is assigned a unique IFSC Code.
This code is mentioned on various bank documents such as cheque book, pass book, etc.
The format of IFSC Code is:
First 4 characters identify the bank, 5th character is number zero and last six digits are unique to the branch of the concerned bank.

Income Funds

Income Funds are those debt mutual funds whose primary objective is to generate current income for the investors as against capital appreciation. Such schemes invest in stocks or bonds that are likely to provide high dividend or interest payouts.

Income funds usually have high liquidity and fall under the ambit of actively managed funds. They have two investment objectives:
Generate an interest income by keeping the debt instrument till maturity
Generating a mark-to-market gain if the debt instrument rises in value
Historically, Income Funds generate better returns than bank fixed deposits, etc.

Index Funds

Index Funds are a type of mutual funds. The portfolio of these funds is built so as to resemble or track the movement of its underlying market indices. They can comprise of equity stocks or even bond market instruments.

For example, if an index fund tracks NIFTY, its portfolio will consist of the 50 stocks (in the same proportion) that are a part of NIFTY. These funds fall under the ambit of passive fund management.


The concept of indexation is based on the rationale that an asset worth Rs. 1 lakh today may not have the same value in the future due to inflation. Indexation refers to the process of taking into consideration the changes in inflation levels from the time of purchasing an asset or investment to the time of sale. It is used to adjust the cost of an asset in order to accommodate the changes in purchasing power. Indexation can help in reducing tax obligations as it brings down the value of long-term capital gains.


Inflation refers to the increase in the price level of a basket of goods and services in an economy over a period of time. It is expressed in the form of a percentage. There is a negative correlation between inflation and purchasing power of a country’s currency.

When inflation increases in a nation, people’s purchasing power goes down. For instance, in a particular year you could buy 5 kg of rice with Rs. 100. If there is an inflation in the following years, with the same amount of money, you will be able to purchase lesser quantity of rice.
Inflation Risk

Inflation in the economy erodes the value of investments. Inflation risk refers to the risk posed by inflationary trends to an asset, stock or portfolio. It indicates that a certain investment (and its cash flows) will not be as valuable in the future due to impact on purchasing power as a result of inflation.
When investors worry about inflation risk, they are afraid of the possibility of a loss or reduction in the return from their investments due to inflation.

Interest Rate Sensitivity

Interest Rate Sensitivity indicates the impact of fluctuations in the interest rate environment on the price of fixed-income securities.

There is a direct correlation between the duration of a bond and the sensitivity level. Longer is the bond duration, more is the degree of sensitivity to changes or fluctuations in interest rates.

International Funds / Emerging Market Funds

International Funds are mutual funds that invest money in firms that are located outside the investor’s own country. These funds give good returns to the investors especially when the home country’s currency is in a weakened state. The final NAV of such funds is decided by converting the foreign assets’ value into the home country’s currency.

The fluctuations in the exchange rate play an important role in the return from international funds.


IPV stands for In-Person Verification. This is a mandatory step to be completed for various financial transactions including opening a DEMAT or trading account. Once a client has submitted his KYC Form, he or she needs to get the IPV done.

For this, clients can either visit the concerned Fund House with the original copy of the documents shared during KYC or can schedule a home appointment wherein the representatives of the fund house can visit the client to verify the documents.

Alternatively, one can now opt for online or web verification if the facility is available.

Key Information Memorandum (KIM)

Key Information Memorandum or KIM contains necessary information which will enable investors to make wise and informed decision while investing their money. It is a summarized version of the Scheme Information and prospectus.

KIM contains information related to the name of the Asset Management Company, details about the Fund Manager, details of the scheme including options available, performance of the scheme compared to the benchmark, etc.


KRA stands for KYC Registration Agency. It is an agency which is authorized by SEBI to update the KYC information for all customers or investors in a common database. This information can be accessed by all the intermediaries who are registered with when dealing with the same client.

Hence, once the KYC process is successfully completed with a registered intermediary, the customer need not go through the same process again with another agent or intermediary.


KYC stands for Know Your Customer. It is a mandatory legal requirement by many financial institutions and government bodies. It helps in verification of the information provided by the investors and acts as a precautionary measure against illegal acts.

The KYC Form ensures complete disclosure of the investor’s financial status, investment related know-how and risk tolerance. Certain documents such as PAN Card, Passport, Election ID Card, etc. are identified as documents which can be submitted for KYC Verification. KYC needs to be completed for all major financial transactions such as opening a bank account, investing in mutual fund, etc.

Liquid Funds / Money Market Funds

Liquidity refers to the ease with which any asset, security or investment can be purchased or sold without impacting the price considerably. Assets with high liquidity ensure that the investor can receive cash in exchange of the investment easily and without much loss in value.

Liquid Funds refer to debt mutual funds that put the investor’s money in short-term instruments with minimal degree of risk.
For example, T-Bills, government securities, etc. These funds have a maturity period of maximum 91 days.


Liquidity means the ease with which any asset, security or investment can be bought or sold, without much loss of value or significant change in the price. It is a trade-off between the speed of making the desired transaction and the cost of the transaction. A company’s liquidity refers to its ability to fund its short-term financial needs.

Lock-In Period

A Lock-in Period is a pre-determined duration of time (post the issuance of shares, purchase of an asset or investment in a scheme) in which the customers or investors are forbidden from making any sale, transfer or withdrawal transaction.
All investments do not have a lock-in period.

For example, in case of mutual funds, one can exit anytime, except in ELSS Funds. ELSS Funds have a lock-in period of 3 years.

Long-Term Capital Gain

Long-Term Capital Gain refers to the profits earned from the sale of an asset, property or investment that has been held for a time duration that gets classified as long-term. The definition of long-term depends on the class of assets.

The following deductions need to be made from the sale value of the asset:-

  1. Expenses connected with the sale or transfer, ̥
  2. Asset’s indexed cost of acquisition and ̥
  3. Indexed cost of improvement, if incurred. ̥
    The tax rates for Long-Term and Short-Term capital gains are different.

Long Term Capital Gains Tax

Long Term Capital Gains Tax is the tax that is payable on the gains generated from the sale of an asset or investment which has held for a time period classified as long-term. The time period which gets classified as long-term depends on the class of the asset.

For example, in case of debt mutual funds and jewelry, holding period of more than 3 years is taken as long-term.
However, in case of equity shares, bonds, government securities, UTIs, equity mutual funds, zero coupon bonds, holding period of more than 12 months is taken as long-term.


Long-Term Bond Fund

Long-term Bond Funds are a type of mutual funds which invest their corpus into long-term bond and debt securities. Usually, the maturity period of such funds is more than three years.
These are ideal for investors who are planning for their long-term financial requirements and have medium risk appetite.


Lumpsum refers to a single, one-time payment made at the start of the investment which completes the concerned transaction. There are primarily two ways to make an investment – lumpsum and periodic installments (also known as SIP in mutual fund parlance). Lumpsum payments are preferred by individuals who have high risk appetite in addition to availability of necessary disposable income.

Market Risk

Market risk refers to the possibility that an investor can incur losses due to market volatility or any such factor which impacts the performance of the overall financial markets. One such factor could be recession. It is also known as “Systematic Risk”. Though market risk cannot be completely eliminated, it can be hedged to a certain extent through a diversified portfolio.

Maturity Date

Maturity Date is the date on which the principal amount of any debt instrument (including bond and draft) becomes due.

On this date, the principal amount and accumulated interest (if any) becomes payable to the investor or lender. Post the maturity date, interest payouts to the investors come to an end.


Minor is an individual who has not attained the age of complete legal responsibility. As per Indian laws, anyone below the age of 18 years is considered as a minor.

If any investment is made in the name of a minor, then the earnings from such investment are taxable in the hands of either of the parents.

Money Market

Money Market is a trading marketplace which deals in short-term and high liquidity financial instruments. The maturity period of instruments traded in this market is usually one year or lesser. It is used as a means of borrowing, buying or lending funds in the short-run.

The risk factor associated with this factor is minimal as the instruments or securities traded are highly liquid in nature. Participants in this market include banks, mutual funds, insurance companies, etc.

Money Market Instruments

The securities or instruments that are traded in the Money Market are referred to as Money Market Instruments. These instruments have a maturity period ranging between one day to one year.

Some of the common money market instruments in this market are Treasury Bills (T-Bills), Certificate of Deposits (CDs), Call Money, Commercial Bills, Commercial Papers (CPs) and Repurchase Agreements.

Mutual Funds

Mutual Funds refers to an investment instrument which pools in money from multiple investors and then re-invests the corpus into different asset classes. Each mutual fund has a specific financial goal and investment objective. The investors receive dividend from mutual fund investments.

NACH/Auto-debit Mandate

NACH stands for National Automated Clearing House. It is a centralized digital platform that helps to facilitate bulk transactions for government, companies, banks and other financial institutions.

NACH consolidates multiple ECS (Electronic Clearing Systems) transactions taking place in the country. It is very helpful for clearing high-volume and repetitive transactions such as distribution of dividends, interest, subsidies, salary, etc.

Net Asset Value (NAV)

Net Asset Value or NAV is calculated by subtracting the value of liabilities from an entity’s assets. It is an indicator of the net worth or value of a company or a fund house. In context of a mutual fund or ETF, it shows the per unit cost of the fund as on a particular date.

Formula: (Total value of Assets less Total Value of liabilities) divided by Number of units.


Nifty is a broad-based benchmark index of National Stock Exchange (NSE). This term is a culmination of two words – National and Fifty. It is made up of 50 top stocks spread across 12 sectors. The value of Nifty is calculated based on the performance of these 50 stocks. It is also referred to as CNX Nifty and Nifty50.


Nominee refers to an individual or a firm who is mentioned as the beneficiary or the custodian on the behalf of another person. In the event of an unfortunate event such as death of the original owner, the said assets, securities or investment get transferred to the nominee.

Many investment firms including mutual fund houses have made it compulsory for investors to assign a nominee to their accounts. Investors have the option to add multiple nominees to one account, scheme or asset and allocate the weightage or proportion of distribution.

NRE Account

NRE Account or Non-Resident External Account can be opened by any NRI (Non-Resident Indian) in India. NRIs can deposit foreign currency in this account and get the same converted to Indian currency (INR) at the prevailing rate of exchange. The amount deposited in NRE accounts can be freely repatriable without any hassels. Interest on this account is exempt from tax.


NRI or Non-Resident Indians refers to Indian citizens or people of Indian origin who are staying outside the country. The purpose of such stay could be employment, pursuing a business or vocation or any other activity which indicates the intention to continue such stay for an indefinite time period.

In order to be considered as an NRI, the concerned person should have stayed in India for less than 182 days in the previous financial year.

NRO Accounts

An NRO Account or Non-Resident Ordinary Account is an account opened by an NRI in any Indian bank. Funds deposited in foreign currency are directly converted to Indian currency. Interest earned on NRO Accounts is taxable.

This account can be opened as a joint account (with someone who is a resident Indian). Funds in NRO Accounts (principal and interest) can be repatriated only to a certain limit but after payment of Income Tax. An NRO account is a savings account for a non-resident Indian for money earned in India like rental income, Indian investments, etc.

Open-End Fund

An Open –End Scheme or fund are those mutual funds wherein the issue and redemption can take place at any point in time. Such funds are highly liquid in nature as investors can purchase or sell units from the scheme on the basis of the declared NAV. Close-ended schemes are opposite in nature to open-ended funds.


PAN translates into Personal Account Number. It is a unique number assigned to each individual, entity and trust in India. It is also assigned to foreign nationals who make taxable earnings in India. It is accepted as a proof of identity. There are ten characters in the PAN and they indicate the status of the card holder such as whether the person is an individual, entity, etc. It is an important document for taxation purposes.

For many financial transactions, it has been made compulsory to quote the PAN details.


Portfolio refers to a group or collection of assets. It can include stocks, bonds, mutual funds, ETF, etc. The weightage of each component in a portfolio depends on factors such as financial goals, risk appetite, market dynamics etc.

A portfolio can be held directly by the investor or could be managed by fund houses, financial firms or other such professionals.

Portfolio Rebalancing

Rebalancing refers to the act of realigning the proportion of assets or investments in a portfolio. Portfolio rebalancing enables investors to maintain the desired asset allocation mix. It is done by periodically buying or selling assets. This process minimizes the risk of “portfolio drift” and the consequent increase in the risk factor.

For example, the target allocation for an investor is 50% equity funds and 50% debt funds. Post completion of one year, it may so happen that the equity funds over-performed and hence are now at a 60% weightage in the portfolio. The investor in order to adhere to the 1:1 mix may decide to sell some equity funds and invest the amount in debt funds.

Proof of Address

Proof of Address refers to a document which contains information about one’s place of residence. In order to be considered valid, it must be issued by a competent authority such as government, utility providers or a financial institution.

Examples of valid proof of address include Passport, Voter ID Card, Bank Account Statement, PAN Card, Driving License, Leave and License Agreements, etc.

R&T Agents

R&T Agents or Registrar and Transfer Agents refer to institutions that take care of the documentation and paperwork involved in investor servicing. They register and also maintain a comprehensive database of all transactions done by the investors.

R&T Agents are skilled professionals who are adept at recording recurrent and high-volume transactions such as update in personal data, processing of mails, etc.

Some of the well-known RTAs currently operating in India are Karvy, CAMS and Deutsche Investor Services.


Redemption is the process through which an investor receives back the principal amount (in case of fixed-income securities) or sells the units in case of a mutual fund. Different firms have different exit policies. Some may even have a lock-in period during which redemption is not permitted.

In case of redemption of mutual fund units, one can do it directly through the fund house, via a DEMAT account, with the help of a distributor or agent or through a R&T Agent. The reasons for redemption varies for individuals. It can be done if the fund is not performing as per expectations, unforeseen financial crisis or when the markets have reached new highs.

Regular Plans

One can invest in mutual funds through two ways – direct and regular. In regular plans, the investors buy the units in the scheme through a distributor or an agent. Such schemes involve distribution fees and other such charges which are paid to the intermediaries. As a result, the expense ratio for regular plans is higher as compared to direct plans.

However, in regular plans, one benefits from the professional experience of the distributors along with services such as tracking portfolio, rebalancing, etc.


Risk refers to the level of uncertainty which results in the outcome not being as per the expectations. In an investment it indicates the chance or probability that the investor might incur losses as compared to the expected returns.
There is a positive correlation between risk and returns. Higher the degree of risk, higher is the chances of return.

Read more about Risk profile and how it is measured here

Risk Adjusted Returns

Risk Adjusted Returns is equivalent to return per unit of risk. It helps to determine the yield or return that an investment can offer in relation to the risk involved in generating that return. It is expressed as either a rating or a number.

If two investments yield same value of return over a period of time, the one which has a lower risk factor will have a better risk adjusted return.

Rupee-Cost Averaging

Investors who follow the Rupee-Cost Averaging method, invest a fixed sum at regular intervals of time, regardless of the market conditions. This practice ensures that the investor purchases lesser units when the markets are high and more units when the markets are not doing well. It brings down the average cost of each unit in the long run. SIPs are a good example of Rupee-Cost Averaging principle.

Scheme Information Document

Scheme Information Document or SID includes pertinent information about the concerned investment which will enable the investors to make an informed choice. The first section of SID gives an overview and important highlights about the scheme. The subsequent sections elaborate the components of the scheme.

They include information like indicative asset allocation, details and history of the fund manager, expense ratio, tax implications, minimum investment, redemption limits, etc.

Sector Allocation

Sector Allocation is the process of including securities from different industries or sectors in one’s portfolio. This act of diversification gives the investors a wider degree of exposure to the overall market and brings down systemic risk. The proportion, level or type of diversification determine the return from the portfolio.

Generally, wider is the sector allocation, lesser is the risk and return.

Sectoral Funds

Sectors Funds are mutual funds (or sometimes ETFs) which invest their corpus in businesses belonging to a particular sector or industry. These funds let investors take targeted bets on the yield potential of a particular industry or sector. As the portfolio of such funds is restricted to only a specific sector and is not diversified, they are considered to higher on the risk meter.

Examples of sectoral funds are Banking Funds, Technology Funds, Pharma Funds, FMCG Funds, etc.

Sharpe Ratio

This ratio enables investors to judge the return from a particular investment as compared to the risk involved. Investments with higher sharpe ratio are considered better as it indicates that the investment can yield better results for every incremental unit of risk.

It acts as a rational justification for the inherent volatility of an investment. It is named after its creator William F. Sharpe.

Short Term Capital Gains

Capital gains refer to the profit or net earnings one makes from the sale of a capital asset. These gains are classified into short-term capital gains if the period for which they are held falls under the definition of short-term. The short-term holding period depends on the nature of assets.

For example, if capital assets such as debt funds, jewelry are held for less than 36 months, they fall under the short-term category. However, in case of immovable assets such as real estate, land, etc. the criteria is reduced to 24 months.

Short Term Capital Gains Tax

Short Term Capital Gains Tax is the tax that is payable on the gains generated from the sale of an asset or investment which has held for a time period lesser than the long-term. The time period which gets classified as short-term depends on the class of the asset.

For example, in case of debt mutual funds and jewelry, holding period of less than 3 years is taken as short-term.

However, in case of equity shares, bonds, government securities, UTIs, equity mutual funds, zero coupon bonds, holding period of less than 12 months is taken as short-term.


SIP stands for Systematic Investment Plan. This is a way of investment provided by Fund Houses or AMCs which allows the investors to invest a pre-determined sum of money on a regular basis.

The periodicity of investments can be weekly, monthly or even quarterly. It is based on the same principle as Recurring Deposits. SIPs give an opportunity to people who do not have access to a big lump-sum amount to invest and grow their funds.

Standard Deviation

Standard deviation is a statistical unit which is used to measure an investment’s volatility. It enables investors to quantify the degree of risk associated with a particular investment. It uses the historical volatility trends of the investment to arrive at the amount of likely risk in the future.

There is a direct correlation between the associated risk and standard deviation. Higher the risk, higher will be the value of standard deviation.

Systematic Transfer Plan (STP)

Systematic Transfer Plan is a plan which allows the investors to put a lump-sum amount in a particular scheme and later transfer a pre-determined amount to another funds on a regular basis.

There are two kinds of STP options available – Fixed STP and Capital Appreciation STP.

In Fixed STP, the investor transfers a fixed sum of money to other funds.
In Capital Appreciation STP, the investors transfer the profits from one scheme to another.

Systematic Withdrawal Plan (SWP)

A Systematic Withdrawal Plan (SWP) is a facility which allows the investors to withdraw a certain amount of money from the mutual fund scheme as per a pre-defined schedule. The amount could be either constant or variable as per the scheme guidelines.

SWP enables the investors to customize the cash inflows as per their needs. It is often considered as an opposite facility to Systematic Investment Plan (SIP).
Total Return

Total return refers to the actual return or earnings that an investor has received from the investment over a period of time.

This term includes interest, dividends, capital gains. In other words, it is the sum of the interest earned and the appreciation (or loss) in the capital value. It is expressed as a percentage and is calculated on the amount invested.

Total Expense Ratio

The total expense ratio ( TER) is a measure of all the costs associated with managing and operating a mutual fund. The expenses include fund management fees, additional expenses like trading fees,legal fees, auditor fees, and operational expenses and distributor expenses.It is expressed as a percentage of the assets managed.

Treasury Bills

Treasury Bills or T-Bills are an instrument for short-term borrowing used by the Government of India. They have a maximum maturity period of one year. These are zero-coupon securities and offer no interest to the holders.

Instead, they are issued at a discount and redeemed at the full face value on maturity. The risk involved in these instruments is almost minimal as they are managed by the Government.


Yield refers to the return or earnings earned from investing in an asset, security or bonds, over a certain period of time. Examples of yield include interest on debt investments and dividends paid for equity holdings. It is generally expressed as an annual percentage and can be calculated in relation to the amount invested.

For example, Ms. X invests Rs. 1 lakh in stocks of Company A, while Ms. Y invests Rs. 2 Lakhs in the stocks of Company B. If both of them receive Rs. 10,000 as return, then the yield of Ms. X (10%) is higher than that of Ms. Y (5%).

Yield Curve

It is a graphical representation of the interest or yield of investments in relation to the time to maturity. This line or curve denotes the yield that an investor is likely to earn or expect if the investment or bond is held till maturity.

The graph shows the yield on the Y Axis (Vertical Axis) and the maturity period on the X Axis (Horizontal Axis). An inverted yield curve indicates economic downturn.

Yield to Maturity

Yield to Maturity or YTM is the rate of return that the investor will receive if the investment or bond is held till the maturity date. It takes into four factors namely, face value, coupon rate, current market rate and time till maturity. It is also referred to as the redemption yield.

Often this term is confused with the coupon rate which is the interest paid out on the face value of bonds. However, YTM is a broader term and includes coupon rate in its calculations.

Zero Coupon Bond

In parlance of bonds, coupon refers to the interest paid to the bond holder on a periodic basis till maturity. In Zero-coupon Bonds, the value of coupons is nil. Hence the bond holders do not receive any interest on such bonds. They are issued at a deep discount on the face value of the bonds. Hence, they are also known as deep-discount bonds.

On the maturity date, the holder receives the amount equivalent to the face value of the bonds.