Glossary

Accumulation unit
An investment unit where income and gains are reinvested, leading to the potential long-term growth of the investment.

Advisor
A person or firm offering professional financial advice.

Annual Report
A report comprising a comprehensive description of the company's activities in the whole financial year.

Annual Return
The change in percentage in the Net Asset Value (NAV) of a fund over one year is based on the assumption that distributions such as dividend payments and bonuses have been reinvested.

Annualized Return
Returns generated from a fund on a compounded basis over the year also indicate the performance of that fund.

Asset
Any tangible or intangible resource of economic value.

Asset Allocation
A systematic approach for allocating the portfolio into stocks, bonds and cash, and/ or other asset classes or categories. Factors such as age, investment horizon, risk tolerance, and portfolio size play an important role in determining an individual's asset allocation.

Asset Allocation Fund
A fund that spreads its portfolio across different asset classes (equity, debt, etc.) based on a pre-determined ratio.

Asset management agreement
A contract between an investor and a professional asset management firm. It outlines the terms and conditions under which the firm will manage the investor's assets, such as stocks, bonds, and other investments, on their behalf.

Asset Management Company (AMC)
A company, that is registered with the National Bank of Georgia, to manage assets of a mutual fund and make investment/divestment decisions for it.

Assets under Management (AUM)
Assets under Management (AUM) are the total value of all the investments currently being managed by the fund.

Balance Sheet
A financial statement showing a company's or fund's assets, liabilities and shareholder's equity.

Balanced Fund
A mutual fund is composed usually of a balanced mix of both stocks and fixed-income securities.

Benchmark Portfolio
List of investment types, allocation weights for each, and variance limits that reflect the investment style of the Fund. Return on the Benchmark Portfolio will serve as a gauge for assessing the Asset Manager’s performance.

Bond
A debt security that represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.

Bond Fund
A fund that invests primarily in bonds and other debt instruments.

Bond Rating
A rating or grade is intended to indicate the credit quality of a bond, considering the financial strength of its issuer and the likelihood that it will repay the debt. Agencies such as Standard & Poor's, Moody's Investors Service, and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).

Broker
A person who acts as an intermediary between the buyer and seller of a security, insurance product, or mutual fund, often paid by commission. The terms broker, broker/dealer, and dealer are sometimes used interchangeably.

Capital gain/appreciation
It is the profit that results from investments into a capital asset, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price.

Carried Interest (Performance Fee)
A share of any profits that the Asset Manager of the Fund receives as compensation, regardless of whether they contributed any initial funds. This method of compensation seeks to motivate the Asset Manager to work toward improving the fund's performance.

Closed-End Mutual Fund
An investment fund that issues a specific number of shares; its capitalization is fixed. The shares are not redeemable, but are readily transferable and traded on either a stock exchange or the over-the-counter market.

Compounding
Compounding is the earnings on an investment's reinvested earnings. The term indicates that the return earned on an investment will increase, if the returns are reinvested, whether it is interest and/ or dividend income and/ or capital gains. The rate that is used to calculate the returns is based not only on the original investment, but also on the accumulated returns of prior terms.

Coupon
The interest rate that a bond pays (indicated as a percentage of its face value). For example, if the face value of a bond is Rs 100 and it pays interest at 8%, this interest rate is called the coupon.

Commodity Funds
Commodity Funds invest in commodities, for example gold, silver, crude oil, natural gas, etc. and may provide excellent diversification and inflation protection to the average investor's portfolio.

Country risk
The danger international investors face that a nation where they have invested, will suffer severe economic or political problems, or even a natural disaster.

Credit risk
The risk of losses, due to default by a borrower, such as a company or government entity

Currency risk
The risk, that fluctuations in exchange rates will impact the value of your investments.

Custodian
Usually an independent organization, that is responsible for handling, safekeeping and other custodial matters that are related to the securities belonging to the client.

Cut-off time
A designated deadline set by the fund for receiving orders from investors to buy or sell shares. It represents the latest time at which an order must be submitted to be processed at the same day's net asset value (NAV). Orders received after the cut-off time are typically processed at the next business day's NAV.

Debt Fund
Debt funds aim to generate reasonably regular and a steady stream of income for its investors by investing in fixed-income securities such as bonds, corporate debentures, etc.

Distributor
An entity or individual authorized to sell the units of open-end mutual funds on behalf of the AMC.

Distributions/Dividend
Payments made by a fund to its investors representing dividends, capital gains and interest income.

Distribution Waterfall
The order in which the Fund makes Distributions to Unitholders and the Asset Manager.

Dividend Frequency
This is the number of times in a year that dividend is distributed to the unit holders.

Dividend History
The track record of the amount of dividend paid by a company/ mutual fund till date.

Dividend Yield
The amount of cash per share a company pays out yearly to its shareowner as a percentage of the current price per share. A company with a stock price of $25 per share, paying a dividend of $1 per share each year, would have a dividend yield of 4% (1 ÷ 25 = 0.04 x 100 = 4%).

Dividend reinvestment option
A mutual fund investor can decide to reinvest the dividends declared by the fund in order to purchase more units of the fund. This is called the "dividend reinvestment option".

Diversification
The strategy of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.

Dollar-Cost Averaging
An investment technique by which investors buy a fixed dollar amount of a particular investment on a regular schedule. As prices decrease, the investor’s fixed amount buys them a higher number of shares; when prices go up, fewer shares are purchased.

Entry Load
Fees that are required to be paid when one is investing in a fund.

Equities
A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with "stock."

Equity Fund
A Mutual Fund that primarily invests in equity securities.

Exchange Traded Fund (ETF)
An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.

Expense Ratio
A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are the costs the investor pays through a reduction in the investment's rate of return.

Expenses
Operating costs paid from fund assets.

Face Value
This is the original issue price (par value) of one unit of a fund.

Financial Statements
The written record of the financial status of a fund or company, usually published in the annual report. The financial statements generally include a balance sheet, income statement, statement of cash flows, and other financial statements and disclosures.

Fixed-Income Fund
A fund that invests primarily in bonds and other fixed-income securities to provide unitholders with current income.

Fiscal Year
A period that a company or a fund uses for accounting purposes and preparing financial statements. The fiscal year may or may not be the same as a calendar year.

Fund Manager
The person(s) responsible for devising and implementing a fund's investing strategy and who actively takes part in its on-going management, with a view to achieve the Fund’s Investment Objective.

Fund Manager’s Report (FMR)
Periodic information provided by the fund manager to the investor regarding the performance of the funds, related markets and future outlook.

Funds of funds
A mutual fund, collective investment fund, or other pooled investment that invests primarily in other mutual funds, collective investment funds, or pooled investments rather than investing directly in individual securities (such as stocks, bonds or money market securities).

Gain
An increase in value of the security.

Government Securities
Any debt obligation issued by a government (e.g., Treasury Bills, PIBs).

Growth Fund
A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.

Growth and Income Fund
A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payment.

Growth units
The type of units opted by the investor that entitles him to receive the dividend in the form of bonus units.

Growth investing
A popular investment style whereby the fund managers identify companies showing good or attractive earnings prospects.

Holding Period
The duration of time between an investor's purchase and sale of a security.

Hurdle Rate
Minimum yearly Unitholder return that needs to be achieved before the Asset Manager receives the Performance Fee.

Index Fund
A fund that replicates a particular market index, such as the Dow Jones 30 Index, by holding many, if not all, of the same stocks and in the same proportion as in the benchmark index.

Income Fund
A fund that invests in fixed-income instruments with the main objective to provide current income rather than growth of capital.

Income units
The type of units opted by the investor that entitles him to receive the dividend in the form of cash.

Inflation risk
The danger that the returns from one's investments will fail to keep pace with increase in the general price level in the economy. This is usually a major problem with Fixed-Income investments where investment return generally lags behind increased in Inflation, thereby resulting in a decrease in return in real terms.

Initial public offering (IPO)
A process of a fund or a company offering its shares to the public for the first time.

Interim Dividend
A dividend announced during a fiscal year is an interim dividend.

Interval fund
An investment fund that combines features of open-end and closed-end funds. It periodically offers to repurchase shares from investors at specified intervals, providing limited liquidity.

Interest-rate risk
The danger that the price of a bond will fall as interest rates rise. Portfolio managers gauge a fund's interest-rate risk by calculating its duration.

Investment Objective
Every mutual fund has an investment objective according to which the fund manager has to make investments for the fund. For example, in case of an equity fund, the investment objective may be to invest in large cap companies across a range of sectors in order to give investors capital appreciation.

Investment Adviser
A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.

Investment horizon
A length of time an investor plans to hold an investment before needing to access the funds or achieve a specific financial goal.

Junk Bond
A bond which is rated below the investment grade and denotes high risk to the investor.

Know Your Customer (KYC)
Financial service providers like mutual funds, banks, brokerages, etc. are required to verify the identity and information furnished by their clients like their name, address, beneficiaries, etc. when they open accounts. This is called the 'Know Your Customer' or KYC.

Liquidity
Liquidity generally refers to the notion as to how readily an asset or security or investment can be converted to cash. Open end mutual funds generally offer a high degree of liquidity to their investors.

Liquidity risk
This is a risk that emanates from the fact that a particular security may not be easily bought or sell without impacting its price.

Lock in period
Lock-in period is the time period when the investor is not allowed to redeem the units that he has purchased in the mutual fund.

Load
A % charge by the fund when an investor buys or sells units in the fund.

Management Fee
The annual fee that the Fund pays to the Asset Manager to compensate for the asset management services.

Market Risk
The possibility, that the value of an investment will fall because of a general decline in the financial markets.

Maturity Date
The date on which the principal amount of a loan, bond, or any other debt becomes due and is to be paid in full.

Money Market Fund
A fund that invests in short-term Bank Deposits and Georgian government’s treasury bonds. As the safest of all funds, these portfolios have a stable NAV.

Money market instruments
Short-term debt securities that have a high credit quality and are highly liquid. These instruments are issued by governments, corporations, and financial institutions to meet short-term financing needs.

Mutual funds
Mutual fund is a collective investment mechanism that pools resources of many investors, issues them units and invests on their behalf. The mutual fund invests the collected funds in securities in accordance with the investment objective as disclosed in the Fund’s information document.

Net assets
The total value of a fund's cash and securities less its liabilities or obligations.

Net Asset Value (NAV)
Net Asset Value or NAV is the per unit value of a mutual fund’s assets. It includes all assets owned by the fund like cash, financial securities, receivables, etc. in the portfolio minus its expenses and liabilities, divided by the number of units issued by the fund.

NAV = Market or Fair Value of Fund 's investments + Current Assets - Current Liabilities and Provision / Number of Units outstanding under Fund on the Valuation Date.

Offering Document
The official document, that describes a mutual fund to prospective investors and solicits investment from them. All necessary details for a prospective investor are contained in the Offering Document.

Offer Price
The price at which a mutual fund's shares are bought by the investor.

Open-ended Funds
Open-ended funds are available for investors to purchase and redeem units continually on business days. Open-ended funds can theoretically exist in perpetuity.

Passive Management
The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.

Portfolio
Portfolio is a collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.

Portfolio Manager
Portfolio Manager is the individual, team, or firm who makes the investment decisions for an investment fund, including the selection of the individual investments.

Portfolio rebalancing
The process of periodically revising a portfolio to restore the asset-class weights for stocks, bonds, and cash to their long-run target values. This is done by selling shares in appreciated asset classes and buying shares in under-represented categories.

Principal
The original GEL/USD/EUR amount of investment. Principal may also be used to refer to the face value or original amount of a bond.

Qualified Investors
Any investor that falls into a category of well-informed investors as defined by the Law on Securities Markets of Georgia.

Redemption Price
The price at which a mutual fund's shares are redeemed (bought back) by the fund.

Redeem
To liquidate mutual fund units by selling it back to the fund. Mutual fund shares may be redeemed on any business day.

Registered Investment Fund
An investment fund that is registered by the National Bank of Georgia and that can only issue shares through private placement (offering of units to the Qualified Investors only and less than 20 Retail Investors).

Risk
The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

Risk Adjusted Returns
Returns adjusted for their level of risk, before striking a comparison between various funds.

Risk Tolerance
An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.

Sector risk
The danger, that a particular industry such as software/biotechnology will plunge.

Sharpe Ratio
Developed by Nobel laureate William F. Sharpe, it helps investors evaluate a portfolio's return in terms of risk exposure. A higher Sharpe ratio indicates lower risk exposure relative to the return generated, while a lower ratio indicates relatively high-risk exposure. The Sharpe ratio is calculated by subtracting the risk-free interest rate (e.g., that of Treasury bills) from a portfolio's return, then dividing by the standard deviation of the portfolio's returns.

Sector Fund
A fund which invests in stocks from a specific industry aimed at growth, making them risky by nature.

Stock
A share of ownership or equity in a corporation.

Standard Deviation
The measure of how closely a set of data matches the mean (average) value of that data. The higher the standard deviation, the more spread out (or variable) the data points are. The lower the standard deviation, the more closely each data point matches the mean value of the group. Standard deviation can be used to measure the historical variability of a mutual fund's annual return.

Stock Market
It is the market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets.

Total Return
Total return is the change in value of an investment over a given period, assuming reinvestment of any dividends and capital gain distributions, expressed as a % of the initial investment.

Unit Holder
A person who holds units in a fund.

Voluntary Pension Funds
Investment vehicles established by individuals to save and invest for retirement voluntarily. These funds allow individuals to contribute money on a regular basis, which is then managed by a pension fund manager.

Volatility
The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk because there is an increased chance that the price of the security will have fallen when an investor wants to sell.

Weighted Average
The calculated average of some given values in which certain values are assigned more influence (greater weight) over the outcome than the other values.

Yield
Yield is the dividend or interest that an investor gets on an investment. It is normally expressed as a percentage with respect to the current market price of the investment.

Yield on a debt security = interest divided by market price of the debt security

Yield on an equity = dividend divided by market price of the equity share.

Yield Curve
An upward-sloping curve that reflects the relationship between yields on a bunch of fixed-income securities and varying maturities namely notes, bonds, treasury bills, etc.

Yield to Maturity
A tool to determine the rate of returns received by an investor in case of a long-term investment bearing interests, like bonds, are held all the way up to its date of maturity.

Zero Coupon Bond
A bond that pays no coupons but compensates investors with price gains.