Mutual Fund Term Dictionary

Last updated: April 8, 2016

Definitions of Technical Terms

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available by the Kansas Securities here.

Bear Market

A period when the markets in general decline.


An interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time (usually several years) and then repay the bondholder the face amount of the bond.

Bull Market

A period when the markets in general rise.

Capital Gain (or Loss)

The difference between the price at which you buy an investment and the price at which you sell it.

Central Registration Depository (CRD)

A computerized database that contains information about most brokers, their representatives and the firms they work for.

Compound Interest

This is really interest paid on interest. When interest is earned on an investment and added to the original amount of the investment, future interest payments are calculated on the new, higher total.


The method of balancing risk by investing in a variety of securities.


The portion of a company’s earnings that are paid out to stockholders.

Dollar-Cost Averaging

A program of investing a set amount on a regular schedule regardless of the price of the shares at the time.

Exchange-Traded Funds (ETFs)

Mutual funds that trade like stocks on the exchanges. Their portfolios generally track an index that represents a particular market or a slice of a market.

Expense Ratio

A fund’s annual operating expenses as a percentage of its total assets. This ratio covers the cost of management, legal, accounting, printing and other costs of doing business. It may also include marketing expenses. An expense ratio of 1.0% means a fund extracts $10 per year for every $1,000 invested.

401(k) Plan

An employer-sponsored retirement plan that permits employees to divert part of their pay tax-free into the plan. Money invested in the 401(k) may be matched by the employer, and earnings accumulate tax-deferred until they’re withdrawn.

Individual retirement account (IRA)

A tax-favored retirement plan. Contributions to a traditional IRA may be tax-deductible, depending on your income and whether you are covered by a retirement plan at work. Earnings grow tax-deferred, and withdrawals are taxable. Contributions to a Roth IRA are never deductible, but earnings accumulate tax-free and withdrawals are tax-free in retirement.


A sales commission charged by many mutual funds. Some are front-end loads (the fee is paid when the shares are purchased); others are back-end loads (the fee is paid when the shares are sold).

Money-Market Fund

A mutual fund that invests in short-term corporate and government debt and passes the interest payments on to shareholders.

Mutual Fund

A professionally managed portfolio of stocks, bonds or other investments divided up into shares.

Net Asset Value (NAV) Per Share

The result of dividing a fund’s total assets by the number of shares outstanding. Equivalent to the fund’s share price.

North American Securities Administrators Association (NASAA)

Membership organization for state securities regulators who work to protect investors’ interests (


The collection of all of your investments.


The document that describes a securities offering or the operations of a mutual fund, a limited partnership or other investment.

Risk Tolerance

Risk tolerance is the degree to which you are willing to risk losing some (or all) of your original investment in exchange for a chance to earn a higher rate of return. In general, the greater the potential gain from an investment, the greater the risk that you might lose money.

State Securities Regulators

Agencies that work within state governments to protect investors and help maintain the integrity of the securities industry.


A share of stock represents ownership in the company that issues it. The price of the stock goes up and down, depending on how the company performs and how investors think the company will perform in the future.

Total Return

An investment-performance measure that combines two components: any change in the price of the shares and any dividends or other distributions paid to shareholders over the period being measured. With mutual funds, total-return figures assume that dividends and capital-gains distributions are reinvested in the fund.

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