Mutual Fund Glossary

Addendums and Notices

Offer document of a mutual fund scheme spells out all the details including investment objective, risk factors, sponsor's track record, educational qualification and work experience of key personnel. However, many of the details pertaining to the scheme may change, which is issued by the fund house in the form of addendum. These addendums and notices are available on the fund house website and also get published in the national dailies.

Asset Allocation

Asset allocation is an investment strategy which aims to spread investor's portfolio across several assets such as equities, bonds, gold and cash according to their age, goals, risk tolerance ability and investment horizon. Mutual fund schemes too follow this strategy, albeit as per their investment objective. For instance, a hybrid mutual fund scheme such as balanced funds typically has an allocation up to 65% in equity, and the remaining in debt and cash equivalents. Investors can, thus, look at the asset allocation of a mutual fund scheme and map it to their individual asset allocation.

Average Maturity

Pure debt and hybrid mutual funds have different types of fixed income instruments in their portfolio with each of them having a maturity date. Average maturity refers to the average of the maturities of the entire debt instrument in the portfolio of the fund. Average maturity will give an idea about how sensitive the debt fund is to the changes in the interest rate. Fixed income instruments with longer maturity are more volatile than those with shorter maturity.