Financial Glossary
Your comprehensive guide to financial and investment terms. Understanding these terms will help you make more informed decisions about your financial future.
A
Asset
Anything of value that is owned by a person or entity, which can be converted to cash.
Asset Allocation
The strategy of dividing investments among different asset categories, such as stocks, bonds, and cash to optimize the risk/reward ratio.
Annual Report
A document published yearly by public companies providing comprehensive information about the company's financial performance and future prospects.
Arbitrage
The simultaneous purchase and sale of an asset to profit from a difference in the price across different markets.
Asset Management Company (AMC)
A company that invests pooled funds from clients in various securities, providing investors with more diversification and investment options than they would have alone.
B
Bear Market
A market condition in which prices of securities fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Benchmark
A standard against which the performance of a security, mutual fund, or investment manager can be measured.
Blue Chip
A well-established, financially sound, and historically secure company that has demonstrated reliable performance over time.
Bond
A fixed-income investment that represents a loan made by an investor to a borrower, typically a corporation or government entity.
Bull Market
A market condition in which prices are rising or are expected to rise, encouraging buying.
C
Capital Gain
An increase in the value of a capital asset that gives it a higher worth than the purchase price.
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest from previous periods.
Credit Rating
An assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
Call Option
A contract that gives the buyer the right, but not the obligation, to purchase a specific number of shares of a security at a predetermined price within a specified time period.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations by dividing current assets by current liabilities.
D
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, paid to shareholders.
Diversification
The strategy of investing in a variety of assets to reduce the risk associated with putting all money in one place.
Debt-to-Equity Ratio
A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
Debenture
A type of debt instrument that is not secured by physical assets or collateral, but backed only by the general creditworthiness of the issuer.
Derivatives
Financial contracts whose value is dependent on an underlying asset, group of assets, or benchmark.
E
Equity
The value of an owned asset minus the amount of all debts on that asset. In the context of stocks, it refers to the ownership of shares in a company.
Exchange Traded Fund (ETF)
A type of investment fund and exchange-traded product that tracks an index, sector, commodity, or other asset but can be purchased or sold on a stock exchange the same as a regular stock.
ELSS (Equity Linked Savings Scheme)
A type of diversified equity mutual fund that offers tax benefits under Section 80C of the Income Tax Act, with a lock-in period of 3 years.
Expense Ratio
The annual fee charged by mutual funds and ETFs to cover operating expenses, expressed as a percentage of assets.
Earnings Per Share (EPS)
A company's profit divided by the outstanding shares of its common stock, serving as an indicator of the company's profitability.
F
Fixed Income
A type of investment security that pays investors fixed interest payments until its maturity date.
Fundamental Analysis
A method of evaluating a security in an attempt to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
Futures Contract
A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.
Face Value
The nominal value or dollar value of a security stated by the issuer, also known as par value.
Fiscal Year
A 12-month period used by governments and businesses for accounting purposes and preparing financial statements.
G
Growth Investing
An investment strategy focused on stocks of companies expected to grow at an above-average rate compared to their industry or the market.
Good Till Cancelled (GTC)
An order to buy or sell a stock that remains active until it is executed or cancelled by the investor.
Gross Domestic Product (GDP)
The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
Gilt Funds
Mutual funds that invest primarily in government securities and bonds, known for their relatively low risk compared to equity funds.
GST (Goods and Services Tax)
A value-added tax levied on most goods and services sold for domestic consumption in India.
H
Hedge
An investment position intended to offset potential losses that may be incurred by a companion investment.
High-Yield Bond
A bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds, and municipal bonds, offering higher yields due to higher risk.
Holding Period
The length of time an investment is held by an investor, or the period between the acquisition and disposal of an asset.
Hybrid Fund
A mutual fund that invests in both stocks and bonds to provide a balanced portfolio.
Hurdle Rate
The minimum rate of return on a project or investment required by a manager or investor.
I
Index
A statistical measure of change in a securities market. Examples include the Sensex, Nifty, S&P 500.
Inflation
A general increase in prices and fall in the purchasing value of money.
Initial Public Offering (IPO)
The first sale of stock by a private company to the public.
Interest Rate
The amount a lender charges a borrower for the use of assets, expressed as a percentage of the principal.
Investment Portfolio
A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and ETFs.
J
Joint Account
A bank or brokerage account shared by two or more individuals.
Joint Venture
A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
K
Key Rate
The specific interest rate that determines all other interest rates in an economy.
Know Your Customer (KYC)
The process of verifying the identity of clients and assessing potential risks of illegal intentions for the business relationship.
L
Leverage
The use of borrowed money to increase the potential return of an investment.
Liquidity
The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.
Limit Order
An order to buy or sell a stock at a specific price or better.
Large Cap
A company with a market capitalization value of more than ₹20,000 crores.
Lock-in Period
A predetermined time period during which investors cannot redeem or sell their investments.
M
Market Capitalization
The total market value of a company's outstanding shares, calculated by multiplying the stock's price by the total number of shares outstanding.
Mutual Fund
An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and similar assets.
Mid Cap
A company with a market capitalization between ₹5,000 crores and ₹20,000 crores.
Money Market
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.
Margin Trading
The practice of buying securities with borrowed funds from a broker.
N
Net Asset Value (NAV)
The value of a fund's asset less the value of its liabilities per unit or share.
NIFTY 50
A benchmark Indian stock market index that represents the weighted average of 50 Indian company stocks in various sectors.
Nominee
A person designated to receive the proceeds of an investment in the event of the investor's death.
Non-Performing Asset (NPA)
A loan or advance for which the principal or interest payment remains overdue for a specified period.
Nondisclosure Agreement (NDA)
A legally binding contract in which one party agrees not to disclose confidential information to a third party.
O
Options
A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
Open-End Fund
A mutual fund that continues to sell shares to investors and will buy back shares when investors wish to sell.
Overhead
The ongoing business expenses not directly attributed to creating a product or service.
Overweight
An investment recommendation indicating that an investor should hold more of a particular security compared to the security's weight in the underlying benchmark portfolio.
Operating Income
A company's profit after deducting operating expenses but before deducting taxes and interest.
P
P/E Ratio (Price-to-Earnings Ratio)
A valuation ratio of a company's current share price compared to its per-share earnings.
Portfolio
A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents.
PMS (Portfolio Management Service)
A specialized investment service offered to high net worth individuals where professional money managers make investment decisions on their behalf.
Premium
The amount by which the price of a security exceeds its face value, or in options trading, the price paid by the buyer to the seller for the option.
Prospectus
A formal legal document that provides details about an investment offering for sale to the public, required by securities regulators.
Q
Quantum
The amount or quantity of a security or financial asset.
Quote
The most recent price at which a security has traded.
Quick Ratio
A liquidity ratio measuring a company's ability to pay its short-term obligations with its most liquid assets.
R
Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments.
Risk Management
The process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
Redemption
The return of an investor's principal in a fixed-income security, such as a bond, mutual fund, or preferred stock.
Recurring Deposit
A type of term deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month and earn interest.
Rights Issue
An issue of shares offered at a special price to existing shareholders in proportion to their current holding.
S
Sensex
A benchmark index of the 30 largest and most actively traded stocks on the Bombay Stock Exchange.
Systematic Investment Plan (SIP)
An investment strategy in which investors regularly contribute a fixed amount of money to mutual funds, stocks, or other financial instruments.
Small Cap
A company with a market capitalization below ₹5,000 crores.
Sector Fund
A mutual fund that invests solely in businesses that operate in a particular industry or sector of the economy.
Securities and Exchange Board of India (SEBI)
The regulatory body for the securities and commodity market in India.
T
Technical Analysis
A trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
Tax-Deferred
Investment earnings such as dividends, interest, or capital gains that accumulate tax-free until the investor takes constructive receipt of the gains.
Treasury Bills
Short-term government securities with maturities ranging from a few days to 52 weeks.
Trading Volume
The total number of shares or contracts traded in a security or an entire market during a given period.
Term Insurance
A type of life insurance policy that provides coverage for a specified term or period at a fixed payment amount.
U
Unit Linked Insurance Plan (ULIP)
A product offered by insurance companies that provides both insurance coverage and investment exposure.
Underlying Asset
A security or commodity on which a derivative's price is based.
Underwriter
A company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body.
Upside
The potential increase in value of an investment above its current or expected value.
Unrealized Gain/Loss
A profit or loss that exists on paper but has not been realized yet through a transaction.
V
Valuation
The process of determining the current worth of an asset or a company.
Value Investing
An investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
Volume Weighted Average Price (VWAP)
A trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price.
Venture Capital
A form of private equity financing provided by firms or funds to startups, early-stage, and emerging companies with high growth potential.
W
Withdrawal
The removal of funds from an account, investment, or benefit.
Wholesale Price Index (WPI)
A measure of the average change in price of goods sold in bulk by wholesalers over time.
Working Capital
The difference between a company's current assets and current liabilities, representing the capital available for daily operations.
Warrant
A derivative that gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.
Wealth Management
A service that combines financial/investment advice, accounting/tax services, retirement planning, and legal/estate planning for a client fee.
X
XD (Ex-Dividend)
A security trading without the value of the next dividend payment.
X-Efficiency
The degree of efficiency maintained by individuals and firms under conditions of imperfect competition.
Y
Yield
The earnings generated and realized on an investment over a particular period, expressed as a percentage of the amount invested.
Yield Curve
A line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
Yield to Maturity (YTM)
The total return anticipated on a bond if it is held until it matures.
Z
Zero Coupon Bond
A debt security that does not pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.
Zero-Based Budgeting
A method of budgeting in which all expenses must be justified for each new period, starting from a zero base.