A Beginner’s Guide to SIP: 40 Essential Terms

Understanding the Language of Investing

Systematic Investment Plans (SIPs) have become a popular investment avenue for beginners due to their simplicity and potential for wealth creation. However, the world of finance comes with its own set of jargon. To navigate this landscape confidently, it’s essential to grasp the key terms associated with SIPs. Let’s demystify the language of investing with this comprehensive glossary.

Core SIP Concepts

1. Systematic Investment Plan (SIP): A disciplined investment approach where a fixed amount is invested in a mutual fund at regular intervals.
2. Mutual Fund: A pool of money collected from multiple investors and invested in various securities like stocks, bonds, or money market instruments.
3. Net Asset Value (NAV): The current price per unit of a mutual fund.
4. Units: The number of shares you own in a mutual fund.
5. SIP Amount: The fixed amount invested in a mutual fund through SIP.
6. SIP Date: The date on which the SIP installment is deducted from your bank account.
7. Rupee Cost Averaging: The benefit of buying more units of a mutual fund when the NAV is low and fewer units when the NAV is high, leading to a lower average cost per unit over time.
8. Power of Compounding: The phenomenon where the earnings from an investment earn returns, leading to exponential growth over time.
9. Equity: Ownership in a company.
10. Debt: Money borrowed by an entity, such as a government or corporation.
11. Hybrid: A mutual fund that invests in both equity and debt securities.
12. Diversification: Spreading investments across different asset classes to reduce risk.
13. Risk: The potential for loss of an investment.
14. Return: The profit earned on an investment.
15. Liquidity: The ease with which an investment can be converted into cash.
16. Lock-in Period: A period during which you cannot redeem your investment.

Mutual Fund Specific Terms

1. Open-Ended Fund: A mutual fund with no fixed maturity date, allowing investors to buy and redeem units anytime.
2. Closed-Ended Fund: A mutual fund with a fixed maturity date, and investors can buy units only during the initial offer period.
3. Growth Plan: A mutual fund scheme that reinvests all profits to enhance long-term growth.
4. Dividend Plan: A mutual fund scheme that distributes a portion of the profits to investors as dividends.
5. Equity Fund: A mutual fund that primarily invests in stocks.
6. Debt Fund: A mutual fund that primarily invests in debt securities.
7. Hybrid Fund: Hybrid Fund is a mutual fund that invests in both equity and debt securities.
8. Large-Cap Fund: A mutual fund that invests in large-sized companies.
9. Mid-Cap Fund: A mutual fund that invests in medium-sized companies.
10. Small-Cap Fund: A mutual fund that invests in small-sized companies.
11. Index Fund: A mutual fund that tracks a specific market index.
12. ELSS (Equity Linked Savings Scheme): A tax-saving mutual fund with a lock-in period of three years.
13. Fund Manager: The professional responsible for managing a mutual fund’s portfolio.
14. Expense Ratio: The annual fee charged by a mutual fund to cover its operating expenses.
15. Exit Load: A fee charged for redeeming units before a specified period.

Investment and Financial Terms

1. Portfolio: A collection of investments.
2. Asset Allocation: The distribution of investments across different asset classes.
3. Financial Goals: Specific financial objectives you want to achieve.
4. Investment Horizon: The time period for which you plan to invest.
5. Risk Tolerance: Your ability to handle fluctuations in the value of your investments.
6. Systematic Withdrawal Plan (SWP): Systematic Withdrawal Plan (SWP) is a method to withdraw a fixed amount from a mutual fund at regular intervals.
7. Systematic Transfer Plan (STP): A method to transfer a fixed amount from one mutual fund to another at regular intervals.
8. Market Risk: The risk associated with fluctuations in the overall market.
9. Financial Advisor: A professional who provides financial advice and guidance.