The following glossary has been provided to GLOBEfund courtesy of Ranga Chand, a leading independent economist and author of Ranga Chand's World of Mutual Funds and Ranga Chand's Getting Started with Mutual Funds. You can read excerpts from Ranga Chand's Getting Started With Mutual Funds in the Getting Started section of the Resource Centre.
Assets are distributed among stocks, bonds, and money-market instruments (treasury bills,
certificates of deposit, short-term government bonds, and commercial paper).
A charge for withdrawing shares from a mutual fund.
Balanced Mutual Fund
An investment fund that usually includes bonds, debentures, or preferred shares, in
varying ratios with common stocks.
A prolonged period of falling prices. A bear market in stocks is usually brought on by the
anticipation of declining economic activity, and a bear market in bonds is caused by
rising interest rates.
Bond Mutual Fund
An investment fund predominantly made up of bonds and debentures.
Certificates issued by borrowers, usually governments or corporations. A bond will
normally have a fixed interest rate and a set maturity date, at which time the principal
will be repaid in full. A typical bond will have interest coupons attached which are
redeemed annually or semi-annually.
A person who acts as an intermediary in the purchase of securities or insurance.
A prolonged rise in the prices of stocks, bonds, or commodities. Bull markets may last
from a few months to several years and are characterized by high trading volume.
Capital Cost Allowance
A tax deduction for the depreciation of various types of assets.
The difference between the buy and sell price of an asset. The capital gain on stocks
purchased for $1,000 and sold for $1,450 would be $450.
Closed-End Mutual Fund
A fund in which the total number of shares is fixed. After the initial offer, the shares
can be acquired only from another owner. Share prices are set by supply and demand, not
net asset value, and are traded on a stock exchange.
Short-term debt securities issued by corporations, banks, and other borrowers.
A security representing part ownership in a company, generally carrying the right to vote
on major decisions and to receive dividends.
Certificates attached to a bond that can be redeemed for interest payments at regular
General debt obligation backed only by the integrity of the borrower. An unsecured bond is
Protection of certain types of assets against loss. Bank and trust company deposits are
covered by the Canada Deposit Insurance Corporation (CDIC) up to a maximum of $60,000.
Mutual funds are not covered by deposit insurance.
Investments that derive their value from underlying assets such as currencies, treasury
bills, and bonds or are linked to indices such as a stock market index. Derivatives can be
used to speculate on market movements or to protect investments against major swings in
A company that has the exclusive right to offer shares of one or more investment funds to
the public, directly, or through other investment fund dealers or brokers.
Assessments levied by some mutual fund companies on the value of units purchased through a
back-end load sales option.
An investment technique intended to minimize risk by placing money in a number of
securities. In a diversified portfolio, a decline in the value of one stock, for example,
would not dramatically affect the overall value of the holdings.
Dividend Tax Credit
A tax credit intended to reduce the effective rate paid on dividend income.
Payments made to shareholders of a company in the form of cash or additional shares.
Common and preferred shares, representing a share in the ownership of a company.
Equity Mutual Fund
An investment fund consisting primarily of common shares, the objective of which is to
participate fully in the growth of an economy.
Professionals who specialize in preparing financial programs for individuals, covering
such matters as investments, tax planning, retirement preparation, estate planning, and
income generation. Some charge an hourly fee while others make their revenue through
commissions on the sale of securities, including mutual funds.
Fixed Income Mutual Fund
A fund that invests in securities which pay interest at a fixed rate, such as bonds.
The commission charged when mutual fund units are bought.
Global Mutual Fund
A fund that invests in several countries, including its home nation. The fund may
specialize in stocks, bonds, or money-market instruments.
An investment fund that seeks growth of capital as its primary objective. This type of
fund invests primarily in common stocks and securities convertible into common stocks.
Guaranteed Investment Certificates (GICs)
Securities issued by financial institutions, such as banks and trust companies, for a
specified term. GICs of up to five years issued by members of the CDIC are covered by
deposit insurance up to $60,000.
A strategy used by fund managers to limit investment risk.
An investment fund whose primary objective is current income. Such funds generally invest
their assets in government, corporate, or other bonds. Some income funds may include
high-yielding common stocks.
International Mutual Fund
A fund that invests in many countries but not its own.
A fund's (or investor's) goal. Investment strategies can be designed to generate long-term
growth, current income, or other goals.
Securities owned by an individual consisting of a combination of stocks, bonds, and other
types of securities.
Borrowing money for investment purposes.
The ability to convert a security to cash quickly.
The fee charged by a mutual fund to investors to buy units (front-end load or acquisition
fee) or sell units (back-end load or redemption fee).
The business entity that establishes, promotes, and manages a fund or funds, each of which
is a separate entity with its own board of directors or trustee(s).
The fee paid to a fund's manager for investment management and certain administrative
Money-Market Mutual Fund
An investment fund, the portfolio of which is invested in large denominations of
short-term paper (generally maturing in less than six months), designed to provide high
yields with no loss of capital.
Pools of investment money, managed by professionals, and invested in a wide range of
Net Asset Value (NAV)
The value of mutual fund shares. It is normally calculated daily by subtracting a fund's
liabilities from its assets and dividing by the number of shares outstanding.
No-Load Mutual Fund
A fund offered to the public that carries no purchase fee (front-end load) or redemption
fee (back-end load).
The combined holdings of more than one stock, bond, commodity, real-estate investment,
cash, or other asset by an individual or institutional investor. The purpose of a
portfolio is to reduce risk by diversification.
The amount of money you invest.
The selling document legally required to be distributed to mutual fund investors. A
prospectus describes a fund's investment strategy as well as the risks and costs of the
The right of a shareholder to sell, at any time, some or all of his or her shares back to
the investment fund for cash.
Any security that is held in a tax-sheltered plan approved by Revenue Canada.
Registered Retirement Income Fund (RRIF)
A fund set up with proceeds from an RRSP to provide income during retirement.
Registered Retirement Savings Plan (RRSP)
A plan registered with Revenue Canada that encourages Canadians to save for retirement by providing tax relief on contributions and earnings.
The amount of money earned by an investment.
The measurable possibility of losing or not gaining value. Risk is differentiated from
uncertainty, which is not measurable.
The amount of commission paid by an investor to a sales organization.
A unit of ownership in a company.
Someone who owns one or more shares in a company.
Ownership in a corporation represented by shares that are a claim on the corporation's
earnings and assets. Common stock usually entitles the shareholder to vote in the election
of directors and other matters taken up at shareholder meetings or by proxy. Preferred
stock generally does not confer voting rights but it has a prior claim on assets and
earnings (dividends must be paid on preferred stock before any can be paid on common
Moving money from one mutual fund to another.
The total amount any investment returns, including any capital gains or losses and any
dividends or interest.
An annual service commission paid by mutual fund companies to sales representatives. These
fees generally range between 0.25% and 1% of customers' assets and are paid out of the
fund's management expenses.
The price charged to transfer your assets to another company.
Short-term debt securities issued most commonly by the federal government.
Someone who holds one or more units in a mutual fund.
The amount by which a fund's return varies over time; used as a measure of investment
Income, usually interest, paid by a security on a regular basis.