Investment Terms

Sub Categories of Active Equity Management

Some of the major sub categories of the two major style of active equity management (top down and bottom up) are listed below;

  1. Growth managers: Growth managers can be classified as either top-down or bottom-up. The growth managers are either divided into large capitalization or small capitalization. The growth managers buy securities that are typically selling at relatively high P/E ratios, due to high earnings growth rate, with the expectation of continued high earnings growth. The portfolios are characterized by high P/E ratios, high returns, and relatively low dividend yields.
  2. Market timers: The market timer is typically a set category of top-down investment style and comes in many varieties.
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Advantages of Rolling Settlement

Rolling settlement system replaced the badla system from July 2, 2001. On July 2, 2001, 215 scrips were brought under the riling systems, bringing the total to 414 scrips. By January 2, 2002 all scrips were brought under compulsory rolling mode. Internationally most developed countries follow a T+3 cycle and are aiming to move to a T+1 cycle (next day settlement) or a T+0 cycle where trades are settled on the day they are executed (same evening settlement). This is system of T+0 is prevalent in Switzerland and volumes are phenomenal when compared to the T+3 system. Indian stock markets moved to the T+3 system from April 2002, in line with the recommendations of the “Group of Thirty” which suggested it as minimum international standard.… Read the rest

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Liquid Mutual Fund Schemes

The objective of liquid mutual fund schemes  is to invest in short-term money market instruments of good credit quality. The fund predominantly invests in money market instruments and provides investors the returns that are available on these instruments. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The liquid funds are normally open-ended. It provides with the following options/schemes, which are sub-products within the liquid fund.

  • Overnight Option (Growth): This option is meant to be used by investors with very short-term investment horizon and is fully invested in the call money market.
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Balanced Mutual Funds

Mutual funds that invest both in debt and equity markets are called balanced mutual funds or simply balanced fund. A typical balanced fund would be almost equally invested in both the markets. The variations are equity funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in debt. Similarly, there are predominantly debt funds (over 70% in debt securities) which invest in equity, to provide some growth potential to their funds. A balanced fund also tends to provide investors exposure to both equity and debt markets in one product.… Read the rest

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Mutual Fund NAV Calculation

The net asset value is the market value of the assets of the scheme deducting its liabilities. Simply put, the NAV is what investors are required to pay to buy or sell one share of the mutual fund. Keep in mind any additional fees are not included in this amount. In accounting terms, NAV is also known as the book value of the mutual fund.

The net asset value per mutual fund unit on any business day is computed as follows:

NAV = (Market value of the fund’s investments + Receivables + Accrued income -Liabilities -Accrued expenses)/Number of units outstanding

Rules Governing the Mutual Fund NAV Calculation
  1. Accrued Income and Expenses: The correct accrual of all incomes and expenses is a requirement for computing NAV.
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Mutual Fund Prospectus

A mutual fund prospectus is an offer document issued at the time of new issue of mutual funds, as an invitation to the public to subscribe to the units of a particular scheme. It contains the key information about the terms, conditions and the features of the mutual fund schemes and the application form. All mutual funds are required to give information about their schemes as per the format of the offer document prescribed by SEBI. Everyone agrees that the prospectus is the single best source of information about a mutual fund, yet as many of mutual fund investors do not use this critical document when investing their savings and retirement assets.… Read the rest

Abey Francis
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