NISM Series V-D · Chapter 2: Concept & Role of a Mutual Fund

L1 · Foundation

Foundation — What a mutual fund is, its vocabulary, advantages and limitations

The concept of investing through rather than in a mutual fund, the role of funds in the economy, investment objectives and policy, the core vocabulary from units to mark to market, and the twelve advantages and five limitations.

24 min read · Worth 3% of the paper · Written from pages 41–67 of the official NISM workbook · Updated 17 September 2026

Chapter 2 — Concept and Role of a Mutual Fund

2.1 The concept — through, not in

The misconception it corrects: "the scheme is perceived to be COMPETING with the traditional instruments of investment, viz. equity shares, debentures, bonds. The reality is that one invests in these instruments THROUGH a mutual fund scheme".

The definition

Through it, an investor "can get access to equities, bonds, money market instruments and/or other securities, that may otherwise be unavailable to them, and avail of the professional fund management services offered by an asset management company".

2.2 The role of mutual funds

For the investor: "The primary role of mutual funds is to help investors in EARNING AN INCOME OR BUILDING THEIR WEALTH, by investing in the opportunities available in securities markets".

A note on usage: "In the industry, the words 'fund' and 'scheme' are used interchangeably".

For the economy, the chapter traces a chain:

Money raised "ultimately benefits governments, companies and other entities... for funding of various projects or paying for various expenses".
Those projects "offer employment to people; the income they earn helps them buy goods and services offered by other companies" — "thus, overall economic development is promoted".
"As a LARGE INVESTOR, the mutual funds can keep a check on the operations of the investee company, and their CORPORATE GOVERNANCE AND ETHICAL STANDARDS".
The industry "offers livelihood to a large number of employees of mutual funds, distributors, registrars and various other service providers".
Higher employment and output "boosts the REVENUE COLLECTION of the government".
"Mutual funds can also act as a MARKET STABILIZER, in countering large inflows or outflows from foreign investors". The workbook's example: "In 2022 and 2025, when foreign portfolio investors (FPIs) sold heavily in the equity market, Mutual Fund industry provided a COUNTERFORCE in the form of demand for equity stocks by virtue of fresh inflows".

2.3 Investment objectives and investment policy

Table 2.1 — examples of investment objectives

Investment objective	Category
"Reasonable income along with high liquidity by investing in only Debt and money market securities with the maturity upto 91 days"	Liquid fund
"Capital appreciation/income from a portfolio, predominantly invested in equity and equity related instruments"	Equity fund
"Long term capital appreciation by investing in a mix of asset class i.e. equity, debt, InvITs and commodities related instruments"	Hybrid fund
"Support goal-based investing by reducing risk over time through a pre-determined maturity structure and a GLIDE PATH strategy"	Life Cycle Fund

Two ways of classifying, closely related: "in terms of the INVESTMENT OBJECTIVES, i.e., what they aim to achieve; and often in terms of the INVESTMENT UNIVERSE, i.e., WHERE they invest".

And the crucial point about who bears the outcome:

Investment policy

Asset allocation is "disclosed in the Scheme Information Document (SID)". Style varies even within an asset category — "growth style or value style; or different levels of portfolio concentration e.g., focused fund or diversified fund".

2.4 The core vocabulary

Term	Definition
Units	"The investment that an investor makes in a scheme is translated into a certain number of 'Units'"
Face Value	"Typically, every unit has a face value of Rs. 10, but can be different e.g. Rs 100. The face value is relevant from an ACCOUNTING perspective".
Unit Capital	"The number of units issued by a scheme MULTIPLIED BY ITS FACE VALUE"
Recurring Expenses	Fees and commissions to constituents, "charged as a PERCENTAGE to the scheme's assets under management (AUM)... deducted while calculating the NAV. This means that HIGHER THE EXPENSES, LOWER THE NAV, and hence LOWER THE INVESTOR RETURNS". SEBI has imposed strict limits
Net Asset Value (NAV)	"The TRUE WORTH of a unit of the mutual fund scheme" — and "also the NET REALIZABLE VALUE PER UNIT in case the scheme is to be LIQUIDATED–how much money could be generated if all the holdings of the scheme are sold and converted into cash"
Assets Under Management (AUM)	"The sum of all investments made by investors... the entire mutual fund scheme's size" — obtainable by "multiplying the current NAV with the total units outstanding". It rises with fresh contributions and falls on dividend or redemption. The dividend option is now called Income Distribution Cum Capital Withdrawal (IDCW)
Mark to Market (MTM)	"The process of valuing each security in the investment portfolio of the scheme at its CURRENT MARKET VALUE" — done DAILY for NAV calculation, which "results in daily fluctuations in the NAVs of all schemes"

2.5 Advantages of mutual funds for investors

Professional Management — "investing in line with the investment objective, investing based on ADEQUATE RESEARCH, and ensuring that PRUDENT INVESTMENT PROCESSES are followed". It also covers administration: "collection of corporate benefits (for example interest payments, dividends, rights issues, buybacks)", and daily NAV publication means "the accounting of the entire portfolio is done on a daily basis".

Affordable Portfolio Diversification — "proportionate ownership in a diversified investment portfolio even for a small investment of Rs. 500". To match a fund's diversification directly, "investors will need to set apart SEVERAL LAKHS of rupees. Instead, they can achieve the diversification through an investment of LESS THAN THOUSAND RUPEES".

Economies of Scale — pooling makes professional management possible; "costs related to investment research and office space gets spread across investors", and "the higher transaction volume makes it possible to NEGOTIATE BETTER TERMS with brokers, bankers and other service providers".

Transparency — "THREE ESSENTIAL PLACES from where the investor can get enough information... viz., SCHEME RELATED DOCUMENTS (SID, SAI, and KIM), PORTFOLIO DISCLOSURES (e.g. factsheet), and THE NAV of the scheme. Incidentally, even a PROSPECTIVE INVESTOR can access all this information".

Liquidity — investors "can recover the market value of their investments, FROM THE MUTUAL FUND ITSELF... either at any time, or during specific intervals, or only on the closure of the scheme". Schemes of the last kind are "COMPULSORILY LISTED on a stock exchange". The chapter notes that "the bond market in India is WHOLESALE, where transactions take place in very large lot sizes, beyond the reach of the common investor. MFs offer a route for investors to participate, even at a small ticket size". And: "If a 'MATERIAL' development takes place... such information is made available on time... This combination of TRANSPARENCY AND LIQUIDITY ENHANCES THE SAFETY".

Tax Deferral — "Mutual funds are NOT LIABLE TO PAY TAX ON THE INCOME THEY EARN. If the same income were to be earned by the investor directly, then tax may have to be paid in the same financial year". Choosing options that let money grow in the scheme "helps investors to LEGALLY BUILD THEIR WEALTH FASTER".

Tax benefits — ELSS gives "deduction of the amount subscribed up to Rs. 150,000 in a financial year under SECTION 80C of the OLD TAX REGIME".

Convenient Options, Investment Comfort ("further purchases with very little documentation"), Regulatory Comfort ("SEBI has mandated STRICT CHECKS AND BALANCES"), and a Systematic Approach to Investments through SIP, SWP and STP — "such systematic approaches promote INVESTMENT DISCIPLINE".

2.6 Limitations of mutual funds

Lack of Portfolio Customization — in Portfolio Management Services (PMS), "the investor has BETTER CONTROL over what securities are bought and sold... can get a CUSTOMIZED portfolio". In a fund, "a unit-holder... is just one of several thousand investors... the unitholder CANNOT INFLUENCE what securities or investments the scheme would invest into".

Choice Overload — "multiple mutual fund schemes offered by several mutual fund houses and multiple options within those schemes". SEBI's answer was "the CATEGORISATION of mutual funds to ensure UNIFORMITY in characteristics of similar type of schemes".

No Control Over Costs — "an individual investor has NO CONTROL over the costs in a scheme". But SEBI "has imposed certain limits", and "the MARKET FORCES also push the cost down, and there are many schemes that operate at expenses MUCH LOWER than the limits allowed by the regulator".

No Guaranteed Returns — "The structure of mutual funds is such that—it is a PASS-THROUGH VEHICLE and passes on the risk and return to the fund's investors... A mutual fund is NOT A GUARANTEED RETURN PRODUCT." The deciding factors are "the MOVEMENT OF THE SPECIFIC MARKET in which the money is invested, the PERFORMANCE OF INDIVIDUAL SECURITIES held and the SKILLS of the investment management team. Out of these, the fund manager can work towards improving ONE'S SKILLS, but the other factors are OUT OF HIS CONTROL".

2.7 Growth of the industry in India

Measure	From	To
AUM	₹11.89 lakh crore, March 2015	₹82.03 lakh crore, February 2026 — an 11-year growth of 19.3% p.a. compounded
Folios	a little over 4.8 crore, March 2010	27.39 crore, March 2026
Share of overall financial investments	10% (March 2016) → 12% (March 2017) → 14% (March 2018)	while bank deposits fell from 71% → 69% → 65%
India's share of the world industry	0.33% in 2008	0.60% in 2018
SIP contribution	₹8,055 crore, March 2019	₹32,087 crore, March 2026
SIP assets	—	₹15.11 lakh crore, March 2026

Think of it like this

You invest THROUGH a mutual fund, not IN one

Ask most investors what they own and they will say "a mutual fund", as though it sat alongside shares and bonds on a shelf. The workbook calls this out in the first paragraph:

Think of a bus. You do not travel in a bus service; you travel to a destination by bus. The bus is the way, not the place.

So the scheme is not competing with equity shares and debentures — "the reality is that one invests in these instruments THROUGH a mutual fund scheme." What actually changes is the manner:

Three differences, and a fourth benefit stated separately: access "to equities, bonds, money market instruments and/or other securities, THAT MAY OTHERWISE BE UNAVAILABLE TO THEM" — the wholesale bond market being the chapter's own example of a place a retail investor cannot reach alone.

NAV is what you would get if everything were sold today

The workbook gives NAV two definitions in one breath, and the second is the one that gets examined:

That second sentence is why NAV, not market price and not AUM, answers the question "what is one unit actually worth?"

Keep the neighbouring terms apart, because they are easily confused:

Term	What it measures
Face value	Typically ₹10, sometimes ₹100 — "relevant from an ACCOUNTING perspective"
Unit capital	Units issued × face value
NAV	The true worth per unit; net realizable value on liquidation
AUM	The whole scheme's size — "current NAV × total units outstanding"
Market price	Only relevant for listed units, and may differ from NAV

And the engine underneath all of it is Mark to Market: "the process of valuing each security... at its CURRENT MARKET VALUE", done daily, which "results in DAILY FLUCTUATIONS in the NAVs of all schemes." A NAV that moved every day is not a sign of trouble; it is the accounting working.

Expenses come out before NAV — so the investor pays them without seeing them

There is no separate bill. The charge is already inside the number you look at — which is precisely why SEBI "has imposed STRICT LIMITS on how many expenses could be charged to the scheme."

That fact sits behind two other passages. It explains the limitation the chapter lists: "an individual investor has NO CONTROL over the costs in a scheme", because "costs incurred for managing the scheme are shared by ALL the Unit-holders in proportion to their holding." And it explains the qualification that follows: "the MARKET FORCES also push the cost down, and there are many schemes that operate at expenses MUCH LOWER than the limits allowed by the regulator. This aspect turns out to be ADVANTAGEOUS for investors."

The companion principle is who bears the outcome: "Profits or losses... BELONG TO THE INVESTORS OR UNITHOLDERS. NO OTHER ENTITY involved in the mutual fund in any capacity PARTICIPATES IN THE SCHEME'S PROFITS OR LOSSES. They are all paid a FEE OR COMMISSION."

Everyone else earns a fee whatever happens. The unitholder takes the result.

Open-ended, close-ended, interval — and what happens to unit capital

The structural difference is easiest to hold by asking one question: who is on the other side of your transaction?

	Open-ended	Close-ended	Interval
Transact with	The scheme itself, any time after the NFO	Another investor, on the stock exchange	The scheme, but only during transaction periods
Maturity	None	Fixed maturity date	Largely close-ended
Unit capital	Keeps changing — units created on purchase, cancelled on redemption	Stable or fixed	—
Listing	Not required	Compulsory (except ELSS)	Compulsory, to allow an exit between intervals
Price	NAV	May differ from NAV	—

The close-ended case has a consequence investors do not expect: "Depending on the demand-supply situation for the units of the scheme on the stock exchange, the transaction price could be HIGHER OR LOWER than the prevailing NAV... Experience suggests that MOST OF THE TIME, THE UNITS TRADE AT A DISCOUNT TO THE NAV."

And the workbook explains why in one sentence of plain bargaining logic: "The buyer has MONEY, and hence MANY OPTIONS to choose from, whereas the seller has THE UNITS of the close-ended fund. This puts the BUYER IN A BETTER BARGAINING POSITION."

For interval funds, learn the two minimums: transaction period at least 2 working days, interval period at least 15 days — and "no redemption/repurchase of units is allowed except during the specified transaction period."

An ETF is a fund that trades like a stock — several prices a day instead of one

An ordinary open-ended fund has one NAV at the end of the day, and every transaction that day happens at it. An ETF does not.

That is the whole innovation, and the chapter introduces ETFs precisely as the answer to a problem: close-ended and interval units are listed, but "the liquidity in these units may be POOR" and "the actual price may be at a DISCOUNT to the NAV." ETFs address this — "the market price also TRACKS THE NAV VERY CLOSELY."

What you gain and what you must watch:

Gain	Watch
Additional liquidity, and the ability to "take benefit of changes that take place in prices DURING THE DAY"	"The prices might FLUCTUATE quite a bit and there might be a BIG GAP with the NAV of the fund too. So, investors need to be CAREFUL ABOUT THE PRICE at which they are undertaking their transactions"
Ease — "one can buy them just like a stock", with a very small minimum	Requires transacting on the stock exchange with a demat account

ETFs are passive — "these funds usually track an index or have a fixed portfolio strategy based on some index." And the range keeps widening: "Like Gold ETF recently SILVER ETF has also been introduced by SEBI."

Active versus passive — and who actually decides the portfolio

Two consequences follow, and both are examinable:

A passive fund underperforming the index is not a failure of the manager; matching it is the design. An active fund that merely matches the index has charged more for the same outcome.

SEBI has built a lighter regime around the passive side: "As on December 31, 2024, SEBI has introduced MUTUAL FUND LITE framework for passively managed schemes... a mutual fund that is having only such INDEX FUNDS, EXCHANGE TRADED FUNDS, FUND OF FUNDS or other mutual fund schemes as may be specified by SEBI."

Five categories, and the market-cap definition that runs through all of them

SEBI's categorisation exists to solve the choice overload limitation: "to bring UNIFORMITY in the characteristics of similar type of schemes launched by different mutual fund houses so that the investor can OBJECTIVELY EVALUATE the schemes."

Category	Sub-categories
A. Equity Schemes	13
B. Debt Schemes	17
C. Hybrid Schemes	7
D. Life Cycle Funds	—
E. Other Schemes	2

And one definition underpins the equity side — Box 2.2:

	By full market capitalisation
Large Cap	1st – 100th company
Mid Cap	101st – 250th company
Small Cap	251st onwards

"The same definition applies in case of OTHER SCHEME CATEGORIES, TOO, as applicable."

Then the rule limiting proliferation: "There can be ONLY ONE SCHEME PER CATEGORY, except in the following cases: (1) Index funds and ETFs replicating or tracking different indices, (2) Fund of Funds having different underlying schemes, and (3) Sector funds and thematic funds investing in different sectors or themes."

So an AMC may run many thematic funds — subject to the overlap cap: "no more than 50% of the scheme's portfolios would overlap with other equity schemes in sectoral/thematic category and other equity schemes categories except for large cap scheme." The same 50% cap governs the pair Value and Contra.

A glide path: the Life Cycle Fund grows cautious as its maturity approaches

Chapter 1 described Auto Choice in NPS as a lifecycle fund reducing equity with age. The mutual fund version does the same thing against a maturity date rather than a birthday.

The Table 2.1 objective states it: **"to support GOAL-BASED INVESTING by REDUCING RISK OVER TIME through a PRE-DETERMINED MATURITY STRUCTURE and a GLIDE PATH STRATEGY for asset allocation across asset classes."

And the category definition: "Scheme following GLIDE PATH strategy-based investing across various asset classes i.e. Equity, Debt, InvITs, ETCDs, Gold & Silver ETF."

So as maturity approaches, equity comes down and debt goes up — which is the answer to the chapter's own fifth sample question, and the whole point of aligning a fund to a dated goal. A child's education fund that still held 80% equity three months before the fees were due would have defeated its purpose.

The structural rules are tidy and examinable:


Minimum tenure	5 years
Maximum tenure	30 years
Tenures available in	multiples of 5 years
Maximum active for subscription at any time	6 funds per Mutual Fund

Note also that Life Cycle Funds are a category of their own — one of the five — not a sub-category of hybrid schemes.

The Specialized Investment Fund fills the gap between a mutual fund and a PMS

The workbook explains SIFs by describing a ladder of flexibility:

The entry ticket is the first fact to remember: "The minimum required investment amount is Rs. 10 LAKHS from the investors ACROSS ALL INVESTMENT STRATEGIES OF THE SAME AMC." Note the aggregation — it is ₹10 lakh across the AMC's strategies, not per strategy.

Seven permitted strategies, in three families, and one number recurs throughout:

Family	Strategies	Structure
Equity oriented	Equity Long-Short (min 80% equity); Equity Ex-Top 100 Long-Short (min 65% outside the top 100 by market cap); Sector Rotation Long-Short (min 80% equity, max 4 sectors)	Open-ended or interval
Debt oriented	Debt Long-Short; Sectoral Debt Long-Short (at least two sectors, max sector exposure 75%)	Interval
Hybrid	Active Asset Allocator Long-Short; Hybrid Long-Short (minimum 25% each in equity and debt securities)	Interval

The recurring number is 25% — in every one of the seven, the maximum short exposure through unhedged derivative positions is capped at 25%.

And redemption frequency differs by family: equity strategies daily or less often, debt strategies once a week or less often, hybrid strategies twice a week or less often. As with mutual funds, "only ONE investment strategy shall be permitted to be launched under EACH of the aforementioned categories."

Key terms in this chapter

Actively managed fund: A fund in which the manager has flexibility to choose the portfolio within the scheme’s objective. Expenses are higher, and investors expect it to perform better than the market.
Assets Under Management (AUM): The entire size of a scheme, obtainable by multiplying the current NAV by the total units outstanding. It rises with fresh contributions and falls with dividends or redemptions, and is used to assess the relative size of asset management companies.
Balanced Hybrid Fund: An open-ended scheme investing 40 to 60 per cent each in equity and debt, in which no arbitrage is permitted — the feature that distinguishes it from an Aggressive Hybrid Fund at 65–80% equity.
Capital Protection Oriented Fund: A closed-end hybrid fund in which part of the principal is invested in debt so as to grow back to the principal by maturity, with the remainder taken as equity exposure through derivatives.
Close-ended fund: A scheme with a fixed maturity, bought from the fund only during the NFO and thereafter transacted between investors on a stock exchange. Its unit capital remains fixed, listing is compulsory except for ELSS, and units usually trade at a discount to NAV.
Credit Risk Fund: An open-ended debt scheme investing at least 65% of total assets in corporate bonds rated AA and below, excluding AA+ — in contrast to a Corporate Bond Fund, which invests at least 80% in AA+ and above.
ELSS: Equity Linked Savings Scheme — an open-ended equity scheme with a statutory lock-in of 3 years and tax benefit, minimum 80% in equity, offering deduction of up to ₹1,50,000 a year under Section 80C of the Old Tax Regime.
Equity Long-Short Fund: An SIF strategy with a minimum of 80% in equity and equity related instruments and a maximum short exposure of 25% through unhedged derivative positions, structured as open-ended or interval.
Exchange Traded Fund (ETF): A mutual fund scheme traded on a stock exchange like a stock, usually tracking an index and therefore passive. Because it trades all day it offers multiple prices rather than a single end-of-day NAV, and its market price tracks NAV closely.
Face value: Typically ₹10 per unit, though it can be different such as ₹100. It is relevant from an accounting perspective.
Fixed Maturity Plan (FMP): A close-ended debt fund whose portfolio duration is aligned to the scheme’s maturity and structured around pre-identified investments, giving clarity on likely returns — though without any guarantee or assurance.
Flexi-cap Fund: An open-ended equity scheme with a minimum of 65% in equity, investing dynamically across large, mid and small cap stocks — unlike a Multi Cap Fund, it carries no minimum for each segment.
Focused Fund: An open-ended equity scheme investing in a maximum of 30 stocks, with a minimum of 80% in equity, which must state where it intends to focus — multi cap, large cap, mid cap or small cap.
Glide path: A pre-determined schedule for shifting asset allocation over time, used by Life Cycle Funds to reduce risk as maturity approaches by lowering equity and raising debt.
IDCW: Income Distribution Cum Capital Withdrawal — the present name for what was formerly called the dividend option of a scheme.
Infrastructure Debt Fund (IDF): A close-ended mutual fund scheme investing at least 90% of scheme assets in the debt of infrastructure companies, projects or special purpose vehicles. A trust-based IDF is a mutual fund regulated by SEBI; a company-based IDF is an NBFC regulated by the RBI.
Interval fund: A scheme largely close-ended but open at pre-specified intervals. The open periods are transaction periods of at least 2 working days, separated by interval periods of at least 15 days, and no redemption is permitted outside a transaction period.
Investing through versus investing in: An investor does not invest in a mutual fund but through it — the fund is not a different product competing with shares and bonds, but a different way of investing in them, offering professional management, portfolio diversification and a regulated vehicle.
Investment policy: The means by which a scheme's investment objective is pursued. It discloses two aspects — the scheme's asset allocation, stated in the Scheme Information Document, and its investment style, such as growth or value, focused or diversified.
Life Cycle Fund: A scheme following a glide path strategy across equity, debt, InvITs, ETCDs and gold and silver ETFs, reducing risk over time through a pre-determined maturity structure. Tenures run from 5 to 30 years in multiples of 5, with a maximum of 6 funds open for subscription at any time.
Macaulay duration: The measure by which most SEBI debt scheme categories are defined — for instance a Short Term Fund holds a portfolio of 1 to 3 years duration, a Long Term Fund greater than 7 years.
Market capitalisation definitions: By full market capitalisation, large cap is the 1st to 100th company, mid cap the 101st to 250th, and small cap the 251st company onwards. The same definition applies across other scheme categories as relevant.
Mark to Market (MTM): Valuing each security in a scheme’s portfolio at its current market value. It is done daily for the calculation of the daily NAV, and is what causes NAVs to fluctuate every day.
MF Lite: A SEBI framework introduced as on 31 December 2024 for passively managed schemes — a mutual fund having only index funds, exchange traded funds, fund of funds or other schemes specified by SEBI.
Multi Asset Allocation Fund: An open-ended scheme investing in at least three asset classes with a minimum allocation of 10% in each. Foreign securities are not treated as a separate asset class for this purpose.
Multi Cap Fund: An open-ended equity scheme investing across large, mid and small cap stocks, with a minimum of 75% in equity distributed as at least 25% each in large cap, mid cap and small cap companies.
Mutual fund: A vehicle, in the form of a trust, to mobilise money from investors and invest it in different markets and securities in line with stated investment objectives, giving access to instruments that may otherwise be unavailable and to professional fund management.
Net Asset Value (NAV): The true worth of a unit of a scheme, and also the net realizable value per unit if the scheme were liquidated — how much money could be generated if all holdings were sold and converted into cash.
Open-ended fund: A scheme open for purchase and repurchase on a perpetual basis after the NFO, with no maturity date. Units are created on purchase and cancelled on redemption, so the unit capital keeps changing.
Passive fund: A fund investing on the basis of a specified index, holding only its constituents in the index weights. The manager has no role in selecting investments, running costs are low, and it is not designed to beat the market.
Pass-through vehicle: The structural description of a mutual fund: it passes the risk and return of its investments to the unitholders. It is not a guaranteed return product.
Portfolio Management Services (PMS): A service offered to large investors giving better control over which securities are bought and sold, and hence a customised portfolio — the contrast the workbook uses to explain the mutual fund limitation of lack of portfolio customization.
Quant Fund: A fund relying on data analysis and pre-determined models derived from past data to select holdings and make buy and sell decisions, taking the human element out of decision making.
Recurring expenses: The fees and commissions paid to the fund's constituents, charged as a percentage of assets under management and deducted while calculating the NAV — so higher expenses mean a lower NAV and lower investor returns. SEBI imposes strict limits.
REIT and InvIT: Trusts registered with SEBI investing respectively in commercial real estate and in infrastructure. Neither is a mutual fund scheme. Both require assets of at least ₹500 crore and an offer of at least ₹250 crore, are listed, and have a traded lot of one unit.
Sector Rotation Long-Short Fund: An SIF strategy operating at sector rather than stock level — if the manager goes short on a sector, all stocks of that sector must be held short. Minimum 80% in equity, a maximum of 4 sectors and a 25% short exposure cap.
Smart Beta Fund: An extension of index funds and ETFs that changes the basis of index exposure using alternative strategies, relying less on market capitalisation — for example equal weighting — with the aim of improving returns, increasing diversification and reducing risk.
Specialized Investment Fund (SIF): A product line introduced under the mutual fund regulations to bridge the flexibility gap between mutual funds and portfolio management services. The minimum investment is ₹10 lakh across all investment strategies of the same AMC.
Target Maturity Fund (TMF): A debt fund designed to mature on a specific date, typically between 2 and 14 years, investing in bonds of matching maturity so as to minimise reinvestment risk, and listed to permit exit before maturity.
Unit capital: The number of units issued by a scheme multiplied by the face value.
Units: The number of units of a scheme issued to an investor in exchange for the investment made.

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Original explanatory writing based on the official NISM workbook for Series V-D, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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