Terminology

Glossary

The following list defines some of the most commonly used mutual fund terms. For a more complete list of investment terms consult our Glossary.

Average Annual Return: the percentage change in a mutual fund's net asset value, factoring in distributions (income, dividend, and capital gains payments).

Average Cost Base (ACB): the ACB of a mutual is determined by averaging the price of all units of a fund an investor holds, including those purchased with reinvested distributions. The ACB becomes the cost basis for determing a capital gain or loss when units are sold.

Capital Gain: arises when an investment is sold at a higher price than originally purchased. In a mutual fund, capital gains are created when the fund buys and sells securities. The net gains are then distributed to unitholders, at least annually. Unitholders can also realize a capital gain by redeeming units at a higher price than originally paid.

Custodian: a bank or other financial institution that safeguards a mutual fund's investment assets.

Dollar Cost Averaging: entails making regularly scheduled (often automated) investments of a fixed amount, regardless of market conditions. This strategy enables investors to acquire a greater number of units during periods of market weakness, albeit fewer units when the market is advancing.

Distribution: payments to unitholders of income realized by a fund. Distributions can consist of interest, dividends and/or capital gains. The type and frequency of the distribution depends on the fund.

Load: another name for a sales commission. A front-end load is a commission charged when an investor buys a fund, while a back-end load is charged when a fund is sold. Sales commissions are not charged on no-load funds.

Management Expense Ratio (MER): an MER is charged by a fund company before any returns are paid out to investors. The MER includes the portfolio manager's compensation and other expenses associated with running the fund. Management Fee + Fund Expenses = MER, which is stated as a percentage of the fund's average daily net asset value. MERs are calculated by adding the management fee to the accrued expenses (excluding brokerage and interest charges) and dividing the total by the fund's average net asset value for the relevant financial year.

Net Asset Value Per Share (NAVPS): the value of a mutual fund unit is also referred to as its Net Asset Value per Share. The net assets of the fund equal the value of all investments owned by the fund less any expenses. The NAVPS is calculated by dividing the net assets by the number of units or shares outstanding. A high NAVPS price does not mean a fund is expensive and a low NAVPS does not mean a fund is inexpensive. A fund's NAVPS represents the growth of the investments held in the fund from its issue price (usually $5.00 or $10.00) minus dividend adjustments.

Prospectus: a legal document that provides details on a fund's objectives, history, manager, fees and risks. Most mutual fund companies produce a Simplified Prospectus that summarizes how to buy and sell mutual funds, as well as details on each of the funds offered, in plain English. Always read the prospectus before buying a fund. Click here to download a copy of the Altamira Simplified Prospectus.

Turnover Rate: measures how long a fund holds on to the securities it purchases. Less trading activity means a lower turnover rate.