Investment Jargons Simplified: Breaking Down the Basics Terms

Think of this as how you divide your investments among different asset classes—like stocks, bonds, real estate, or cash. The idea is to spread your money in a way that balances risk and reward based on your financial goals, risk tolerance, and investment horizon.

This refers to how much risk you are comfortable taking with your investments. Some investors can stomach high volatility (fluctuating prices), while others prefer safer, more stable investments. Knowing your risk tolerance is key to choosing the right investment strategy.

Diversification means not putting all your eggs in one basket. It’s about spreading your investments across different assets or sectors to reduce risk. If one investment performs poorly, others might perform better, balancing your overall portfolio.

A mutual fund is a pool of money collected from many investors to invest in stocks, bonds, or other securities. It is managed by professionals, making it a good option for those who don’t want to pick individual stocks but want exposure to a variety of investments.

An ETF (Exchange-Traded Fund) is similar to a mutual fund, but it’s traded on stock exchanges like a stock. ETFs offer diversification at a lower cost and can be bought and sold throughout the trading day.

NAV (Net Asset Value) represents the price per share of a mutual fund or ETF. It’s calculated by dividing the total value of the fund’s assets by the number of shares. NAV helps you know the current worth of your investment in a mutual fund or ETF

When you sell an investment for more than you paid for it, the profit is called a capital gain. Capital gains are taxable, and they can be short-term (held for less than a year) or long-term (held for more than a year), with different tax implications.

A dividend is a portion of a company’s earnings that is paid to shareholders, typically on a quarterly basis. Companies that pay dividends are usually well-established and financially stable, providing a steady income stream for investors.

Blue-chip stocks are shares in large, well-established, and financially sound companies with a long history of reliable earnings and performance. They are considered safe investments for conservative investors.

Volatility refers to how much an investment’s price fluctuates over time. High volatility means big price swings, while low volatility indicates steadier price movements. While volatility can lead to significant gains, it also brings the risk of losses.

Liquidity refers to how quickly and easily you can sell an investment without affecting its price. Stocks of large companies, for example, are highly liquid because they can be bought and sold easily. Real estate, on the other hand, is less liquid because it takes longer to sell.

A bear market occurs when stock prices fall by 20% or more, often due to pessimism and negative investor sentiment.

SIP is a method of investing in mutual funds where you invest a fixed amount at regular intervals (monthly, quarterly, etc.). It allows you to benefit from compounding and rupee-cost averaging, reducing the impact of market volatility over time.

Hedging is a strategy used to offset potential losses in one investment by making another investment. It’s like buying insurance for your portfolio—investors hedge to protect against unfavorable price movements.

Yield refers to the income generated by an investment, typically expressed as a percentage of the investment’s cost or market value. For example, bond yield is the interest earned divided by the bond’s price.

Alpha measures how well an investment performs compared to a market benchmark, like an index. A positive alpha means the investment has outperformed the market, while a negative alpha indicates underperformance.

Beta measures the volatility of an investment in comparison to the overall market. A beta of 1 means the asset’s price moves with the market. Less than 1 means it’s less volatile, while more than 1 indicates more volatility.

Compound interest is the interest on both the initial principal and the accumulated interest from previous periods. It allows your investments to grow exponentially over time.

The expense ratio is the annual fee that mutual funds or ETFs charge their investors. It covers management and operational costs. A lower expense ratio means more of your money stays invested.

An index fund is a type of mutual fund or ETF designed to replicate the performance of a specific market index, like the Nifty 50 or S&P 500. It’s a passive investment strategy with lower fees.

Arbitrage is the practice of buying an asset in one market and selling it in another to profit from price differences. It’s commonly used in stocks, bonds, and commodities.

Market cap (Market Capitalization) refers to the total value of a company’s outstanding shares. It’s calculated by multiplying the company’s current share price by the number of its shares. Companies are often categorized as large-cap, mid-cap, or small-cap based on their market value.

An IPO (Initial Public Offering) is when a private company offers shares to the public for the first time to raise capital. It’s how a company “goes public” and lists its stock on a stock exchange.

This strategy involves investing a fixed amount of money at regular intervals, regardless of the stock price. It helps reduce the impact of market volatility and can lower the average cost of buying shares over time.

Leverage involves borrowing money to increase the potential return on an investment. While it can amplify profits, it also increases the risk of greater losses.

A stop-loss order is an instruction to sell a stock once it reaches a certain price. It helps protect investors from further losses if the stock price drops below a specified level.

The hurdle rate is the minimum rate of return required by an investor or fund manager before committing to an investment. It’s used to evaluate investment opportunities.

A REIT (Real Estate Investment Trust) is a company that owns, operates, or finances income-generating real estate. Investors can buy shares of REITs to gain exposure to real estate markets without directly owning property.

Tracking error measures the difference in returns between a portfolio or fund and its benchmark. A lower tracking error means the fund closely mirrors the performance of its benchmark.

A front-end load is a fee charged when you buy units in a mutual fund. Load fees are paid to brokers or financial advisors for their services.

The Sharpe ratio measures the risk-adjusted return of an investment. It’s calculated by dividing the return of the investment by its standard deviation (a measure of volatility). A higher Sharpe ratio indicates better risk-adjusted performance.

Similar to dollar-cost averaging but in the Indian context, this strategy involves investing a fixed sum of money in an asset at regular intervals. It helps reduce the risk of investing in a volatile market.

ESG (Environmental, Social, and Governance) investing involves selecting investments based on their performance in environmental, social, and governance factors. It’s gaining popularity as investors focus on sustainability and ethical practices.

Margin refers to borrowing money from a broker to invest. It allows you to buy more securities than you could with your own money. However, it’s risky because you must repay the borrowed funds with interest, and losses can be amplified.

A credit rating is a score assigned to a borrower (corporate or government) that measures their ability to repay a loan. Higher credit ratings indicate lower risk, while lower ratings suggest greater risk of default.

An SWP allows investors to withdraw a fixed amount from their mutual fund investments at regular intervals. It’s often used by retirees to generate a steady income stream from their investments.

This ratio measures a company’s financial leverage by comparing its total debt to its total equity. A higher debt-to-equity ratio means the company is using more debt to finance its operations, which can be riskier for investors.

The P/E ratio (Price-to-Earnings Ratio) helps investors determine if a stock is overvalued or undervalued. It is calculated by dividing the current price of a stock by its earnings per share (EPS). A high P/E might mean the stock is overvalued, while a low P/E could indicate it’s undervalued.

A fund manager is a professional responsible for making investment decisions for a mutual fund. They decide which assets to buy or sell, aiming to meet the fund’s objectives and maximize returns for investors.

A growth fund is a type of mutual fund that focuses on investing in companies expected to grow at an above-average rate. These funds aim for capital appreciation rather than income and typically invest in stocks of growth-oriented companies.

Bull market is when stock prices are rising, driven by optimism and confidence in the economy.

Back-end load is a fee charged when you sell units in a mutual fund. Load fees are paid to brokers or financial advisors for their services.

An income fund is a mutual fund that invests primarily in fixed-income securities, such as bonds, and focuses on providing a steady income to investors rather than capital gains. It’s popular among conservative investors looking for regular payouts.

A debt mutual fund invests primarily in fixed-income securities such as government and corporate bonds, debentures, and money market instruments. These funds are generally considered safer than equity funds but offer lower returns.

An equity fund is a mutual fund that primarily invests in stocks. The goal is to generate higher returns through capital appreciation. Equity funds come with higher risk but can offer greater long-term growth potential.

A Hybrid Fund, also known as a balanced fund, invests in both equity and debt instruments to provide both growth and income. The mix between stocks and bonds can vary depending on the fund’s investment strategy and risk profile.

A sector fund focuses its investments on a specific sector of the economy, such as technology, healthcare, or energy. While these funds offer the potential for higher returns if the sector performs well, they also carry higher risk due to limited diversification.

Indexation is a method used to adjust the purchase price of an asset for inflation. This is primarily used in taxation to calculate long-term capital gains on assets like real estate and mutual funds. By increasing the purchase price in line with inflation (using the Cost Inflation Index), indexation reduces the taxable gain, thereby lowering the tax liability on long-term investments.
For example, if you bought a mutual fund years ago and sold it now, indexation helps you adjust the cost of that investment to account for inflation over time, meaning you may pay less in taxes on your gains.

AUM stands for Assets Under Management and refers to the total market value of the assets that a mutual fund, investment company, or portfolio manager manages on behalf of investors. It’s a key indicator of the size, strength, and success of a financial institution. A higher AUM often means a more trusted or popular fund, but it doesn’t always guarantee better returns.
For example, a mutual fund with ₹1,000 crores in AUM means that the total value of all investments made by the fund’s investors amounts to ₹1,000 crores.

An exit load is a fee or charge levied by a mutual fund when an investor redeems (sells) their units before a specified period. It is designed to discourage early withdrawals and promote long-term investing. The exit load varies across funds and is typically expressed as a percentage of the redemption amount.
For instance, if a mutual fund has an exit load of 1% for withdrawals within one year, and you redeem ₹1,00,000 worth of units within that time, you’ll be charged ₹1,000 as an exit load.

Your time horizon refers to the length of time you plan to hold an investment before you need to access the money. Short-term investments are typically less risky, while long-term investments allow you to take on more risk for potentially higher returns.

Inflation refers to the rate at which the general level of prices for goods and services is rising. It reduces the purchasing power of money over time, which means your investments need to grow at a rate higher than inflation to maintain their value.

The coupon rate is the interest rate that a bond issuer pays to the bondholder. It’s expressed as a percentage of the bond’s face value and is typically paid annually or semiannually.

The payout ratio indicates what portion of a company’s earnings is paid out to shareholders in the form of dividends. It’s calculated by dividing dividends per share by earnings per share. A high payout ratio could indicate the company is returning most of its profits to shareholders.

This is a one-time investment of a large amount of money into an asset or a fund. It contrasts with methods like SIP, where you invest smaller amounts regularly over time.

Liquidity ratios measure a company’s ability to pay off its short-term liabilities with its short-term assets. Common examples include the current ratio and quick ratio, both of which help assess financial health.

A derivative is a financial contract whose value is based on the performance of an underlying asset, such as stocks, bonds, commodities, or currencies. Common derivatives include futures, options, and swaps.

Options are contracts that give investors the right, but not the obligation, to buy or sell an asset at a specified price before a certain date. They are often used for hedging or speculation.

A hedge fund is a pooled investment vehicle that uses a variety of strategies to earn high returns, often including leverage, derivatives, and short selling. Hedge funds are usually only available to accredited investors due to their high risk and complex strategies.

Short selling is the practice of selling securities that you’ve borrowed, hoping to buy them back later at a lower price. It’s a way to profit from a decline in a stock’s price, but it’s very risky because losses can be unlimited if the stock price rises.

The bid price is what buyers are willing to pay for a security, while the ask price is what sellers are willing to accept. The difference between the two is the bid-ask spread, which represents the cost of trading the security.

An index is a measurement of the performance of a group of assets, such as stocks or bonds. Common indices include the S&P 500, which tracks 500 large-cap U.S. companies, and the Nifty 50, which tracks the top 50 companies in India.

Value investing is a strategy where investors buy stocks that appear undervalued based on their fundamentals (such as earnings, dividends, or book value). The goal is to buy low and sell high as the stock’s value is realized over time.

Growth investing focuses on companies that are expected to grow at an above-average rate compared to other firms. Growth investors typically seek companies with high revenue and profit growth, even if the stock price is high compared to current earnings.

An accredited investor is a person or institution that meets certain income or net worth requirements, allowing them to invest in securities not registered with financial authorities, like hedge funds or private equity.

A dollar peg is when a country’s currency value is fixed to the U.S. dollar. This is often done by smaller economies to stabilize their currency and reduce the risk of inflation.

A debt instrument is a tool an entity can use to raise capital, typically in the form of bonds, debentures, or loans. The issuer promises to repay the principal along with interest over time.

A callable bond gives the issuer the right to repay the bond before its maturity date. This usually happens if interest rates decline, allowing the issuer to refinance the debt at a lower rate. Callable bonds typically offer higher interest rates to compensate for the risk.

ROI measures the profitability of an investment. It’s calculated by dividing the net profit by the initial cost of the investment. A higher ROI means the investment has generated a higher return relative to its cost.

The initial margin is the amount of money or collateral an investor must deposit when borrowing to buy securities or trade futures. It represents the minimum upfront capital required to enter a leveraged position.

A circuit breaker is a mechanism used by stock exchanges to temporarily halt trading if a stock or market index experiences a dramatic price movement in a short period. It’s meant to prevent panic selling and maintain market stability.

A sovereign bond is a debt security issued by a national government. Governments issue these bonds to finance public projects or manage debt. U.S. Treasury bonds and Indian government securities are examples of sovereign bonds.

Free cash flow represents the cash a company generates after accounting for capital expenditures. It’s a key indicator of financial health, showing how much money a company has left to pay dividends, invest in new projects, or reduce debt.

WACC is the average rate of return a company is expected to pay its security holders (equity and debt holders). It’s a critical metric used in assessing investment opportunities and determining a company’s cost of financing.

A convertible bond is a type of bond that can be converted into a predetermined number of shares of the issuing company’s stock. This offers investors the safety of bonds along with the potential upside of owning equity.

A stock buyback occurs when a company buys back its own shares from the market, reducing the number of outstanding shares. This can increase the value of remaining shares and indicate the company believes its stock is undervalued.

Market sentiment refers to the overall attitude of investors toward a particular market or asset. It can be bullish (positive) or bearish (negative), driving market trends.

Crowdfunding is a method of raising small amounts of money from a large number of people, typically via the internet, to fund a project, venture, or product.

Profit margin measures how much profit a company generates as a percentage of its revenue. It’s calculated by dividing net income by total revenue. A higher profit margin indicates better profitability.

Alpha decay refers to the gradual reduction in the ability of an investment to generate above-market returns (alpha) over time. It often occurs as market inefficiencies are exploited, and the opportunity for outsized gains diminishes.

Capital appreciation refers to the increase in the value of an asset or investment over time. For example, if you bought a stock at ₹100 and its price rises to ₹150, the ₹50 increase is the capital appreciation.

Securities are tradable financial assets such as stocks, bonds, or options. They represent ownership in a company (in the case of stocks) or a debt owed by an issuer (in the case of bonds).

This is a business and investment strategy where companies create new markets or demand rather than competing in existing markets. It focuses on innovation and differentiation.

Portfolio turnover refers to how frequently securities in a fund’s portfolio are bought and sold. A high turnover indicates frequent trading, while a low turnover suggests a more buy-and-hold approach.

SIP return refers to the returns earned through a Systematic Investment Plan (SIP), where regular investments are made into a mutual fund. It shows the average returns from such periodic investments over time.

Top-down Strategy is a strategy where investors first analyze the broader economy and macroeconomic factors, such as interest rates and GDP growth, before selecting sectors and then individual stocks.

Bottom-up Strategy is a strategy that focuses on analyzing individual companies, their fundamentals, and growth potential, without focusing too much on broader economic trends.

This is a passive investment strategy where an investor buys stocks or other securities and holds them for an extended period, regardless of short-term market fluctuations. It’s based on the belief that markets will trend upwards over time.

CAGR (Compound Annual Growth Rate) represents the mean annual growth rate of an investment over a specified period, assuming the profits are reinvested each year. It provides a smooth annualized growth rate, even if the actual returns vary each year.

A benchmark index is a standard against which the performance of a mutual fund, portfolio, or investment strategy is compared. For instance, the Nifty 50 or S&P 500 can serve as benchmarks for equity mutual funds.

Credit risk is the risk that a borrower will default on their debt obligations, meaning they won’t pay back a loan or bond. This is a major factor when investing in corporate or government bonds.

A direct plan is a mutual fund option where an investor directly invests with the fund house, bypassing intermediaries or brokers. These plans have lower expense ratios because they don’t involve commissions.

A regular plan involves investing in mutual funds through a broker or distributor. This plan has higher costs compared to a direct plan because the intermediary earns a commission.

An ELSS (Equity Linked Savings Scheme) is a type of mutual fund that primarily invests in equity (stocks) and offers tax benefits under Section 80C of the Income Tax Act in India. It has a mandatory lock-in period of 3 years.

In a payout option, the dividends or interest earned on investments are paid out to the investor periodically.

A load fund charges a fee when you buy or sell shares, either as a front-end or back-end load. A no-load fund doesn’t charge such fees, meaning you pay no commission when investing in or redeeming the fund.

In the growth option of a mutual fund, the profits made by the fund are not distributed to investors. Instead, they are reinvested in the scheme, allowing the investment to grow over time without any dividend payouts.

In the dividend option of a mutual fund, the profits made by the fund are periodically paid out to the investors in the form of dividends. However, the Net Asset Value (NAV) of the fund decreases by the dividend amount paid.

A rollover occurs when an investor moves funds from one investment to another without realizing a taxable event. For example, rolling over a bond or SIP into another scheme without withdrawing the funds.

An STP is a method where an investor transfers a fixed amount or a predetermined amount of money from one mutual fund to another at regular intervals. It’s commonly used to gradually switch from equity to debt funds or vice versa.

A ULIP (Unit Linked Insurance Plan) is a combination of investment and insurance. Part of the premium is used to provide life cover, while the remaining portion is invested in various funds (equity, debt, or hybrid) as per the investor’s choice.

A futures contract is an agreement to buy or sell an asset at a future date at a predetermined price. These contracts are often used to hedge against price changes in commodities, currencies, or stocks.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It’s a framework for analyzing a company or investment to understand its internal and external factors.

An NFO (New Fund Offer) is the first-time offer for investors to subscribe to a new mutual fund or ETF launched by an asset management company. It’s similar to an IPO but for mutual funds.

A drawdown refers to the decline in the value of an investment from its peak to its lowest point over a specific period. It helps investors assess the risk and potential downside of an investment.

Over-the-counter trading refers to securities that are traded directly between two parties rather than through a formal exchange like the stock market. These transactions are less regulated and often involve smaller companies.

The P/B ratio (Price-to-Book Ratio) compares a company’s stock price to its book value (total assets minus liabilities). A lower P/B ratio might suggest the stock is undervalued, while a higher ratio could indicate overvaluation.

A rights issue is an offering of additional shares to existing shareholders at a discounted price, usually to raise more capital. Shareholders have the right to buy more shares before the company offers them to the public.

A penny stock refers to the shares of a small company that trade for a very low price, typically below ₹10 in India or $5 in the U.S. These stocks are highly speculative and often very volatile.

In a reinvestment option, dividends or interest are automatically reinvested to buy more units in the fund.

An annual report is a comprehensive document released yearly by a company that provides information on its financial performance, operations, and plans for the future. It includes financial statements, management discussions, and other key metrics.

The annualized rate of return refers to the average yearly return on an investment, calculated over multiple years. It helps investors compare performance across different time frames.

An asset class is a category of investments with similar characteristics. Common asset classes include equities (stocks), fixed income (bonds), real estate, and commodities.

The maturity date is the specific date when the issuer of a bond or other debt instrument must repay the principal and any remaining interest to the investor.

The average maturity represents the weighted average of the maturity dates for all securities held in a portfolio, typically for bond funds. It indicates the portfolio’s sensitivity to interest rate changes.

Best-in-class refers to investment strategies that target companies excelling in their respective industries, often used in socially responsible or ESG (Environmental, Social, Governance) investing.

A board of trustees is a group of individuals responsible for overseeing the management of a mutual fund or other investment funds. They ensure the fund is managed in the best interests of the investors.

The capital gains ex-date is the date on which the price of a security drops to reflect any capital gains distributed by the fund. Investors who buy the fund after this date are not entitled to the capital gain distribution.

A long-term capital gain is the profit earned from the sale of an asset held for more than a specified time, usually over 12 months for Equities or equity funds and 24 months for Others. Long-term gains are often taxed at lower rates than short-term gains.

A short-term capital gain is the profit earned from selling an asset that was held for a short period, typically less than 12 months for Equities or equity funds and 24 months for Others. Short-term gains are generally taxed at higher rates than long-term gains.

A capital loss occurs when an investment is sold for less than its purchase price. Capital losses can be used to offset capital gains and reduce tax liabilities.

Capitalization refers to the total market value of a company’s outstanding shares, often categorized into large-cap, mid-cap, and small-cap.

Cash equivalents are short-term, highly liquid investments that can be quickly converted into cash, such as treasury bills or money market instruments.

A corporate bond is a debt security issued by a corporation to raise capital. In return, the company agrees to pay interest to bondholders and repay the principal on the maturity date.

Corporate engagement involves investors interacting with companies to influence decisions that improve financial and ESG performance. It is a strategy used in responsible investing.

CSR refers to the voluntary activities undertaken by a company to operate in a socially and environmentally responsible manner. It can influence a company’s reputation and investor interest.

A custodian is a financial institution that holds and safeguards a company’s or an individual’s securities. Mutual funds, for example, use custodians to manage their assets securely.

The cut-off time is the deadline by which investors must submit their transaction requests (like buying or redeeming fund units) for the order to be processed at that day’s NAV (Net Asset Value).

Dividend Reinvest NAV refers to the price at which dividends are reinvested in a mutual fund. Investors receive additional units based on the NAV, rather than receiving dividends in cash.

Dividend yield is a financial ratio that shows how much a company pays out in dividends relative to its stock price. It is calculated by dividing annual dividends by the stock price.

EPS measures a company’s profitability by dividing its net profit by the total number of outstanding shares. A higher EPS indicates better profitability.

Equities, or stocks, represent ownership in a company. Investors who hold equities can benefit from price appreciation and dividends.

When a stock goes ex-dividend, it means that new investors purchasing the stock after the ex-dividend date are not entitled to the declared dividend.

The ex-dividend date is the day on which a stock begins trading without the value of its next dividend payment. Investors who buy the stock on or after this date are not eligible for the dividend.

Exchange privilege allows investors to switch their investments between different funds offered by the same fund family, often without incurring transaction fees.

A fund of funds (FoF) is a mutual fund or ETF that invests in other mutual funds or ETFs rather than directly in stocks or bonds. It provides diversification across multiple asset classes or strategies.

A fixed income fund invests primarily in bonds or other debt securities that provide a regular, fixed return. These funds are ideal for conservative investors seeking steady income rather than capital appreciation.

Fixed income securities are investments that provide regular interest payments and the return of principal at maturity. Examples include government bonds, corporate bonds, and fixed deposit (FDs).

Interest rate is the percentage charged by lenders to borrowers for the use of assets. In investing, it is the rate of return on investments like bonds or savings accounts.

Interest-rate risk refers to the risk that changes in interest rates will negatively affect the value of investments, particularly fixed-income securities like bonds. When interest rates rise, bond prices typically fall.

An investment advisor is a professional or firm that provides financial guidance and manages investments on behalf of clients. They are typically paid through fees or commissions.

An investment company pools money from investors and invests it in a portfolio of securities like stocks, bonds, or mutual funds. Examples include mutual fund companies and hedge funds.

An investment objective is the financial goal an investor aims to achieve, such as capital appreciation, income generation, or risk management. Investment strategies are designed around these objectives.

Large-cap (large capitalization) stocks are shares of companies with a large market capitalization, typically over ₹20,000 crores. These are well-established companies with stable growth.

Mid-cap stocks represent companies with a market capitalization between ₹5,000 crores and ₹20,000 crores. These companies are generally in a growth phase and offer a balance of risk and return.

Small-cap stocks are shares of companies with a market capitalization of less than ₹5,000 crores. These companies are often newer, riskier, and have the potential for higher growth.

A flex cap fund can invest in companies of any size, whether large, mid, or small-cap, offering flexibility and diversification in its portfolio.

Multi-cap funds invest across large-cap, mid-cap, and small-cap companies, providing a balanced exposure to different market segments.

A letter of intent is a document indicating an investor’s intention to make a certain amount of investments over a specified period. It’s commonly used in mutual fund investments to receive discounts on fees.

A management fee is charged by an investment manager or fund to cover administrative expenses. It’s typically a percentage of the assets under management (AUM).

PMS (Portfolio Management Service) is a customized investment service where a portfolio manager actively manages investments according to an investor’s risk profile and objectives. It’s typically used by high-net-worth individuals.

Market price refers to the current price at which a security can be bought or sold in the market. It fluctuates based on supply and demand.

Market risk is the possibility of losing money due to movements in financial markets. It’s influenced by economic, political, or social events and affects the value of stocks, bonds, and other securities.

A money market mutual fund invests in short-term, low-risk securities like treasury bills, commercial paper, and certificates of deposit. It provides liquidity and stability but typically offers lower returns.

Morningstar ratings are a widely recognized system that evaluates mutual funds based on their historical performance relative to peers, adjusting for risk and fees.

Holdings refer to the individual securities owned within a mutual fund, ETF, or portfolio. For example, a fund’s holdings might include specific stocks, bonds, or real estate.

Par value is the face value of a bond or stock, representing its original issue price. For bonds, it’s the amount the issuer agrees to pay back at maturity.

A portfolio manager is responsible for making investment decisions and managing a fund’s portfolio to achieve its investment objectives. They decide which securities to buy or sell.

Portfolio holdings are the assets (stocks, bonds, etc.) owned by an investor or a mutual fund, making up the overall investment portfolio.

Portfolio allocation refers to the distribution of investments among various asset classes (e.g., stocks, bonds, real estate) to balance risk and return according to the investor’s goals.

A premium is the amount by which the price of a security exceeds its face or par value. For example, a bond trading at a premium costs more than its face value.

A prospectus is a legal document that provides detailed information about a mutual fund or company’s securities offering. It includes details about the fund’s investment objectives, strategies, fees, and risks.

A proxy is a written authorization that allows someone to vote on behalf of a shareholder during a company’s shareholder meeting.

An FPO (Follow-on Public Offering) is when a publicly listed company issues additional shares after its initial public offering (IPO). It helps companies raise more capital.

R-squared (R²) is a statistical measure that shows how closely the performance of a mutual fund or stock correlates with the performance of a benchmark index. An R² of 100% means the performance matches exactly.

A recession is an economic downturn characterized by a decline in GDP, higher unemployment, and reduced consumer spending, typically lasting for several months or more.

Redemption is the process of selling or withdrawing money from an investment, such as redeeming mutual fund units or selling bonds when they mature.

An equity share represents ownership in a company. Equity shareholders have voting rights and may receive dividends, but their returns depend on the company’s profits.

Short-term investments are assets that are expected to be sold or converted into cash within a year. Examples include savings accounts, treasury bills, and money market funds.

Long-term investments are assets held for more than one year, such as stocks, bonds, or real estate. They are typically aimed at generating long-term growth or income.

Social bonds are debt securities issued to raise funds for projects that address social issues like affordable housing, healthcare, or education.

Standard deviation measures the volatility or risk of an investment by indicating how much the investment’s returns deviate from its average return over time.

An SAI provides more detailed information about a mutual fund that is not included in its prospectus, such as financial statements, fund policies, and investment practices.

An equity shareholder, is an individual or entity that owns equity shares in a company. Equity shareholders have ownership rights in the company, including voting rights on major corporate decisions, such as the election of the board of directors. They benefit from the company’s profits through dividends and capital appreciation. However, equity shareholders are last in line to receive any assets if the company is liquidated, after creditors and preference shareholders.

Sustainability bonds are bonds issued to fund projects with both environmental and social benefits. They are part of responsible investing initiatives.

A preference shareholder is an individual or entity that owns preferred shares in a company. Preference shareholders typically receive fixed dividends before any dividends are paid to equity shareholders. While they have a higher claim on a company’s assets in the event of liquidation, they generally do not have voting rights.

Thematic investing focuses on specific investment themes, such as technology, clean energy, or healthcare. Investors in thematic funds target companies related to the chosen theme.

A transfer agent is responsible for managing and maintaining records of investors’ accounts, including transactions and distributions. They process the sale or transfer of securities.

A Treasury bill (T-bill) is a short-term government debt security with maturities of less than one year. They are sold at a discount and pay the face value at maturity, generating interest income.

A Treasury bond (T-bond) is a long-term debt security issued by the government, with maturities of 20 to 30 years. It pays interest every six months until maturity, when the principal is repaid.

A Treasury note (T-note) is a government debt security with maturities between 2 and 10 years. Like T-bonds, they pay interest semi-annually.

The turnover ratio refers to how frequently a mutual fund or ETF buys and sells securities within a given period. A higher ratio indicates more active trading, which may increase transaction costs.

Valuation is the process of determining the worth of a company or asset. This can be done using various methods, including analyzing earnings, cash flow, or comparing similar companies.

Total return measures the overall gain or loss on an investment, including price appreciation and dividends or interest. It provides a comprehensive picture of investment performance.

Year-to-date (YTD) total return measures the gain or loss on an investment from the beginning of the current year to the present date, including both capital appreciation and income.

YTD (Year to Date) refers to the period starting from the beginning of the year up to the current date. It’s commonly used in financial reports to assess performance over part of the year.

Yield refers to the income generated by an investment, typically expressed as a percentage of its current price. For example, the yield on a bond is the annual interest it pays divided by its market price.

YTM (Yield to Maturity) is the total return expected on a bond if it is held until maturity. It accounts for the bond’s current price, interest payments, and the amount paid at maturity.

The 52-week high is the highest price at which a stock has traded in the past 52 weeks. It helps investors gauge the stock’s performance relative to its recent history.

The 52-week low is the lowest price at which a stock has traded in the past 52 weeks. It’s used to assess the stock’s risk and potential for recovery.

Commodities are basic goods or raw materials, such as oil, gold, or wheat, that are traded in financial markets. They are typically used as inputs in the production of other goods or services.

A defined-benefit plan is a retirement plan where an employer guarantees a specific retirement benefit amount for employees, typically based on salary and years of service.

Emerging markets refer to economies that are in the process of rapid growth and industrialization, such as India, Brazil, and China. Investing in these markets offers higher returns but also comes with higher risks.

Investment risk is the likelihood that the actual return on an investment will differ from the expected return, potentially resulting in a loss. Higher risk is typically associated with the potential for higher returns.

An LBO is the acquisition of a company using a significant amount of borrowed money. The acquired company’s assets or earnings are often used as collateral for the loans.

A performance fee is a fee charged by an investment manager if they achieve returns above a certain benchmark. It incentivizes managers to deliver higher returns.

A portfolio is a collection of investments, including stocks, bonds, and other assets, owned by an individual or managed by a financial professional to achieve specific financial goals.

Private equity refers to investments made in private companies (not publicly traded), often with the goal of improving operations and later selling the company for a profit.

Public equity refers to ownership in companies that are publicly traded on stock exchanges. Investors can buy and sell shares in these companies in the open market.

Listed securities are financial instruments, such as stocks or bonds, that are traded on a recognized stock exchange, providing transparency and liquidity to investors.

Unlisted securities are financial instruments not traded on an official exchange. They may carry higher risks and lower liquidity compared to listed securities.

A ticker symbol is a unique series of letters assigned to a publicly traded company or security for identification on a stock exchange, such as RIL for Reliance Industries Ltd.

Venture capital is financing provided to start-ups or small businesses with high growth potential. Venture capitalists receive equity ownership in exchange for funding.

A financial advisor is a professional who provides financial guidance and investment strategies to individuals or businesses, helping them achieve their financial goals.

Real estate refers to land and buildings, which can be owned or invested in for income generation or capital appreciation. Real estate investments can include residential, commercial, or industrial properties.

The stock market is a platform where shares of publicly traded companies are bought and sold. It allows companies to raise capital and provides investors with opportunities for ownership and returns.

Active trading involves frequent buying and selling of securities to capitalize on short-term market movements. Traders aim to generate quick profits rather than holding assets long-term.

The ask price is the lowest price at which a seller is willing to sell a security. In trading, buyers pay the ask price to purchase shares.

The bid price is the highest price a buyer is willing to pay for a security. It’s the opposite of the ask price, and the difference between the two is called the spread.

A call option is a contract that gives the buyer the right, but not the obligation, to purchase a security at a specified price within a certain time frame.

A put option is a contract that gives the buyer the right, but not the obligation, to sell a security at a specified price within a certain time frame.

A beneficial owner is the person who enjoys the benefits of ownership, even if the title to the asset is held in another name (e.g., a trustee or nominee).

Book value represents the net value of a company’s assets, minus its liabilities, as recorded on the balance sheet. It’s a measure of a company’s equity.

Brokerage is the fee charged by a broker to execute trades on behalf of an investor, typically a percentage of the transaction value or a flat fee.

A debenture is a type of unsecured debt instrument issued by a company. It relies on the issuer’s creditworthiness rather than collateral.

A discount broker executes trades for clients at a lower fee than a full-service broker but typically does not provide financial advice or other services.

Expected return is the anticipated profit or loss from an investment, based on historical performance, risk factors, and market conditions.

Face value is the nominal or original value of a bond or security, also known as par value. For bonds, it’s the amount paid back to the investor at maturity.

Fair market value is the price an asset would sell for in an open, competitive market, reflecting both buyer and seller perspectives.

A financial institution is an organization that provides financial services, such as banks, NBFC, credit unions, and investment companies.

A financial plan is a comprehensive strategy designed to help individuals or businesses achieve their financial goals. It includes budgeting, saving, investing, and retirement planning.

Financial planners are professionals who assist clients in creating and managing financial plans, offering advice on budgeting, investments, insurance, and retirement planning.

Financial statements are official records that outline the financial activities of a company. The three primary types are the balance sheet, income statement, and cash flow statement.

A full-service investment firm offers a range of services, including financial advice, portfolio management, and trade execution. These firms charge higher fees compared to discount brokers.

A Fund Facts Sheet is a document that provides key information about a mutual fund or ETF, including its performance, investment objectives, fees, and risks. It’s designed to help investors make informed decisions.

Insider trading involves buying or selling stocks based on confidential, non-public information. It is illegal and considered unethical because it gives an unfair advantage to insiders.

KYC (Know Your Client) is a process through which financial institutions verify the identity of clients to prevent fraud, money laundering, and terrorism financing. Clients must provide personal identification documents.

Liquid assets are assets that can be quickly and easily converted into cash without losing value. Examples include cash, bank deposits, and publicly traded stocks.

A locked-in period refers to a time during which investors are not allowed to withdraw or redeem their investments. Many mutual funds and insurance policies have locked-in periods.

Margin refers to borrowing money from a broker to buy securities. It allows investors to leverage their capital but increases the risk if the investment declines in value.

The MER represents the total costs associated with managing an investment fund, including management fees, expressed as a percentage of the fund’s assets. A lower MER means fewer fees for the investor.

A mutual fund distributor is a person or firm authorized to sell mutual funds to investors. They earn commissions by helping investors choose and invest in funds.

A Ponzi or pyramid scheme is a fraudulent investment scam where returns for earlier investors are paid using the capital from newer investors. These schemes eventually collapse when new investments dry up.

The rate of return is the percentage gain or loss on an investment over a specific period. It is a measure of the profitability of an investment.

Savings refers to the portion of income not spent on immediate expenses and set aside for future use, typically held in low-risk accounts such as savings accounts or certificates of deposit.

To redeem an investment is to sell it back to the issuing company or fund for cash. Mutual fund investors can redeem their units at the current Net Asset Value (NAV).

A scam is a dishonest scheme designed to deceive people into giving away money or personal information. In finance, scams may involve fraudulent investments, Ponzi schemes, or identity theft.

An SRO is an organization that regulates its own members, such as stock exchanges or professional associations. SROs set rules and standards to protect investors and maintain market integrity.

A stock exchange is a marketplace where listed stocks, bonds, and other securities are bought and sold. Major stock exchanges include the NSE and BSE.

A term deposit is a savings account where money is deposited for a fixed period of time and earns interest. Early withdrawal may result in penalties.

The term to maturity refers to the length of time until a bond or other debt instrument reaches its maturity date, at which point the issuer repays the principal to investors.

A trail commission is a fee paid to a financial advisor or distributor for as long as the client holds the investment, usually a percentage of the assets under management.

Wealth is the total value of an individual’s or entity’s financial and physical assets, including cash, investments, real estate, and other possessions, minus any liabilities.

Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of an investment. It represents the annualized rate of return at which the Net Present Value (NPV) of all cash flows (inflows and outflows) from an investment equals zero.
In simpler terms, IRR is the “break-even” rate of return that an investment is expected to achieve, allowing you to gauge its potential profitability.