Chapter Six
Reference
Every term on this site, defined
The short version
Plain definitions for the vocabulary, plus the methodology behind every number here.
Vocabulary
Every term on this site, in plain words.
- SIPSystematic investment plan
- A standing instruction that moves a fixed amount from your bank into a fund on the same date every month. Its value is not the amount — it is that the decision is made once and never revisited.
- NAVNet asset value
- The per-unit price of a fund, published daily. A ₹10 NAV is not cheaper than a ₹500 NAV; it only tells you the fund is newer.
- CAGRCompound annual growth rate
- The single yearly rate that would take a lump sum from its start value to its end value. Correct for one-off investments, wrong for an SIP, because an SIP has many start dates.
- XIRRExtended internal rate of return
- The rate that accounts for money going in on many different dates. This is the honest measure for an SIP, and it is what every figure on this site uses.
- AUMAssets under management
- The total money a fund or industry manages. India's mutual fund industry went from roughly ₹3 lakh crore in 2004 to about ₹75 lakh crore twenty-one years later.
- Expense ratioThe annual fee
- Charged as a percentage of your holding, deducted daily from the NAV, so you never see a bill. An index fund might charge 0.2%; an active fund 1.5% or more.
- Direct vs regular planTwo share classes of the same fund
- A direct plan has no distributor commission built into its expense ratio, so it returns slightly more. A regular plan pays for advice. Both hold exactly the same portfolio.
- ArbitrageRisk-free spread capture
- Buying a share and simultaneously selling its futures contract to capture the price gap. The return resembles debt, but it is legally classified as equity — which is what makes equity savings funds work.
- Lock-inA period you cannot redeem
- Rare in mutual funds. ELSS has three years. Exit loads, usually 1% for redemptions inside a year, are a charge rather than a lock.
- Step-up SIPAn SIP that rises every year
- Increasing the instalment by a set percentage each year, typically matched to your salary. Over long periods this changes the outcome more than the choice of fund does.
- SWPSystematic withdrawal plan
- The reverse of an SIP: a fixed amount paid out to you monthly. This is how a corpus becomes an income without selling all of it at once.
- STCG and LTCGShort and long term capital gains
- Tax on your profit, at different rates depending on how long you held. The dividing line is twelve months for equity and twenty-four months for fund of funds, gold and most international funds.
- NFONew fund offer
- A fund launching for the first time, always at ₹10. It has no track record, which is the one thing you actually needed.
- Alpha and betaSkill and market exposure
- Beta is the return you get for simply being in the market. Alpha is whatever a manager adds beyond it — much rarer, and much harder to identify in advance, than fund marketing suggests.
Methodology
How every number here is produced.
Nothing on this site is a hard-coded result. Every projection is computed from the assumptions visible on screen, so if you move a slider and the answer changes, that is the calculation running, not a lookup table.
SIP growth
Contributions are treated as arriving at the start of each month, because that is when a SIP mandate actually debits. The monthly rate is derived from the annual rate as (1 + r)^(1/12) − 1, which is the correct conversion for an effective annual rate such as CAGR or XIRR.
Loan EMI
Standard reducing-balance formula, with the monthly rate as r / 12 — the nominal convention banks use. Mixing this with the effective convention above is the most common error in DIY calculators, and it overstates returns by around half a percent a year.
Prepay versus invest
Both paths are charged the same monthly outflow and measured at the same date. Prepayment is credited for the years it buys back: once the loan closes early, the freed EMI is invested for the remaining months. Without that adjustment the comparison would be rigged.
Tax
Reflects the regime after July 2024: 12.5% long-term on equity above a ₹1.25 lakh annual exemption, 20% short-term, slab rates on debt, and a 24-month long-term line for fund of funds, gold and most international funds. Surcharge and cess are excluded.
Sources and limits
Where this came from, and what it is not.
The substance of this site is drawn from a recorded conversation with a mutual fund distributor who has run an uninterrupted SIP since August 2010. Figures attributed to that conversation are labelled as such throughout. Where a corpus figure could be derived from a stated return, this site recomputes it rather than quoting it, so the arithmetic can be checked.
Funds are named on this site only where a specific historical record is the point being made, and never as a recommendation. A fund’s thirty-year past tells you about the past. Manager tenure, mandate, size and market conditions all change, and the next thirty years are not available for inspection.
This is educational material, not personalised advice. It does not know your income, your dependants, your existing holdings, your tax position or your temperament — all of which change the right answer. For decisions that matter, speak to a SEBI-registered investment adviser.