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Glossary I

IFA

Independent Financial Agents.

INR

Indian National Rupee.

Income Fund

A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings.

Index Funds

A type of mutual fund in which the portfolios are constructed to mirror a specific market index. Index funds are expected to provide a rate of return over time that will approximate or match that of the market which they are mirroring.

Indexation

The central government specifies an index called as cost inflation index, linked to the wholesale price index. The indices of two years (year of purchase and the year of sale) are used for the purpose of computing capital gains tax. The purchase price is multiplied by the index of the year of sale and the product is divided by the index of the year of purchase. This benefit is available only if the security has been held for more than 12 months. On sale of debt-oriented fund schemes, one can opt for paying tax at the rate of a flat 10% or go in for paying 20% after taking the benefit of indexation.

Inflation

Defined as the fall in the value of a currency, it results in the rise in prices of goods and services over a period of time.

Initial Offer Period

The dates on which the initial subscription to the units of the scheme can be made. It is similar to the IPO of an equity issue. This initial offer period is followed by a continuous offer period.

Interest Rate Risk

The change in the price of a debt security due to changes in the market interest rates is the interest rate risk. For debt oriented mutual fund schemes, this interest rate risk affects the NAV of the fund. A rise in the interest rates leads to a fall in the price of a fixed income security.

Interim Dividend

An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim dividend is a fair indication of a company's profitability, during the working year.

Investment Management

Investment analysis and execution of investment plans in keeping with certain objectives.

Investment objective

The declared purpose of investment of a mutual fund scheme.

Investment strategy

The internal guidelines that a fund follows in investing the money received from the investors.