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Amortization
The systematic repayment (e.g., monthly, quarterly, or yearly) of a debt or loan,
such as a bond or mortgage, over a specific time period.
Annual Report
The corporate financial statement that shareholders eagerly receive each year. It
includes financials of the company’s performance over the previous year.
Annual Return
The percentage of change in a mutual fund’s net asset value over a year, after factoring
in dividend receipts, capital gains, and reinvestment of these distributions.
Arbitrage
The simultaneous purchase and selling of a security in order to profit from a differential
in the price. This usually takes place on different exchanges or marketplaces.
Asset
Anything that has monetary value. Typical personal assets include stocks, real estate,
jewelry, art, cars, and bank accounts. Corporate assets are found on the company's
balance sheet and include cash, accounts receivable, short- and long-term investments,
inventories, and prepaid expenses.
Asset Allocation
Dividing investment dollars among various asset classes, typically among cash investments,
bonds, and stocks.
Asset Classes
The three major asset classes are cash, bonds, and stocks.
Average Maturity
The average of all maturity dates for securities in a money market or bond fund.
The longer the average maturity, the more volatile a fund's share price will be,
moving up or down as interest rates change.
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Balanced Funds
Funds that invest in both stocks and bonds. The relative weightage may differ with
fund manager.
Balance Sheet
A company's financial statement that reports its assets, liabilities, and net worth
at a specific time.
Basis Point
Most often used relating to changes in interest rates. One basis point is 1/100
of a percentage point, therefore 100 basis points make 1 %.
Bear Market
When the overall market loses value over an extended period of time. There is no
"official" definition of what makes a bear market.
Benchmark
A standard to which the performance of something can be compared.
Beta
A measure of the relative volatility of a stock or other security as compared to
the volatility of the entire market. A beta above 1.0 shows greater volatility than
the overall market, and a beta below 1.0 is less volatile.
Blue-Chip Stocks
Really good, large companies that have been around long enough to have a solid history
of rewarding shareholders. Think Hindustan Lever Ltd.
Bond
A debt instrument issued by a company, state or the central government (or its agencies),
with a promise to pay interest at regular intervals and return the principal on
a specified date.
Bond Rating
An evaluation of the possibility of default by a bond issuer, based on an analysis
of the issuer's financial condition and profit potential. Bond rating services are
provided by, among others, CRISIL and Fitch.
Book Value
A company's assets, minus any liabilities and intangible assets. Book value is literally
the value of a company that can be found in the accounting ledger and is often represented
as a per-share value by taking the company's shareholder equity and dividing by
the current number of shares outstanding.
Broker
One who sells financial products. Whether in insurance, real estate, stocks, or
mutual funds.
Bull Market
A market that has been gaining value over a prolonged period.
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Capital
The amount of money invested by an investor.
Capital Appreciation
One of the two components of total return, capital appreciation is how much the
underlying value of a security has increased. If you bought a stock at Rs.10 per
share and it has risen to Rs.13, you have enjoyed a 30% return or appreciation on
the original capital you invested. Dividend yield is the other component of total
return.
Capital Gain/Loss
The difference between the price at which an asset is sold and its original purchase
price (or "basis").
Cash Flow
A measure that tells an investor whether a company is actually bringing cash in
to the company's coffers.
Certificate Of Deposit (CD)
An insured, interest-bearing deposit at a bank, requiring the depositor to keep
the money invested for a specific length of time.
Closed-End Fund
A mutual fund that has a fixed number of shares and is typically listed on a major
stock exchange. These funds often trade perpetually at a discount to their net asset
value (NAV).
Commercial Paper
A promissory note issued by a large company to secure short-term financing.
Commission
A fee charged by a broker for executing a securities transaction.
Compounding
When an investment generates earnings on reinvested earnings.
Consumer Price Index (CPI)
An inflation tracker, much followed by the mainstream media. It is the measure of
the price change in consumer goods and services.
Coupon/Coupon Rate
The interest rate that a bond issuer is obligated to pay the bond holder until the
bond matures.
Cyclical Stock
Stock of a company whose performance is generally related (or thought to be related)
to the performance of the economy as a whole. Paper, steel, and the automotive stocks
are thought to be cyclical because their earnings tend to be hurt when the economy
slows and are strong when the economy turns up. Food and drug stocks, on the other
hand, are not considered "cyclicals," as consumers pretty much need to eat and care
for their health regardless of the performance of the economy.
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Debenture
A debt obligation that is not backed by collateral, but usually rated by a credit
rating agency.
Derivative
A financial contract whose value is "derived" from an another underlying asset,
such as stocks, bonds, commodities, or a market index such as NSE 50. The most common
types of derivatives are options, futures, and mortgage-backed securities.
Discount
The difference between the lower price paid for a security and the security's face
amount at issue.
Diversification
Investing in separate asset classes (stocks, bonds, cash) and/or stocks of different
companies in an attempt to lower overall investment risk.
Dividends
Realized profits that a mutual fund distributes to unitholders.
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Earnings Per Share (EPS)
A company's earnings, also known as net income or net profit, divided by the number
of shares outstanding.
Equities
Shares of stock in a company. Because they represent a proportional share in the
business, they are "equitable claims" on the business itself.
Ex-Dividend Date
The date during the quarter by which you must own a stock to receive its quarterly
dividend payout. The term "ex" means out or without in Latin. So, on the ex-date,
you buy the stock without the dividend. Obviously, the company needs some time to
get its records straight; it cannot pay the dividend to someone who buys the stock
the morning the checks go out.
Expense Ratio
The percentage of a mutual fund that is taken out of the pockets of shareholders
to pay. If you are investing in mutual funds, look for funds with a low expense
ratio.
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Fiscal Year
A 12-month accounting period. From April 1st to March 31st.
Floating Rate Bond
A bond with a variable interest rate. Adjustments to the interest rate are usually
made every 6 months and are tied to a certain money-market index. Example MIBOR.
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Gilt Funds
Funds that invest in government securities, which may be short
or long-term in nature. Higher the maturity of the portfolio, greater will be the
volatility when interest rates change.
Gold Exchange Traded Funds
Funds which invest a majority of their corpus in physical gold.
Growth Funds
Funds which invest a majority of their corpus in equity.
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Income Fund
A mutual fund that invests in bonds with higher-than-average dividends.
Index Fund
A passively managed mutual fund that seeks to match the performance of a particular
market index. Partially due to lower expenses, index funds outperform the majority
of actively managed mutual funds.
Inflation
A rise in the prices of goods and services.
Initial Public Offering (IPO)
A company's first offering of common stock to the public.
Institution Investors
Institutions investors include pension funds, insurance funds, mutual funds, and
hedge funds.
Investment Adviser
An entity that makes the recommendations and/or decisions regarding a portfolio's
investments. Alternatively called a portfolio manager.
Issued Share Capital
The portion of a corporation's equity obtained from issuing shares in return for
cash or other considerations.
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KYC
Know Your Client. With effect from January 1,2011, KYC compliance is mandatory
for all investors - irrespective of the amount of investment.
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Liabilities
Outstanding debts.
LIBOR (London Interbank Offer Rate)
This is the rate of interest at which banks borrow funds from other banks, in marketable
size, in the London interbank market.
Liquidity
A measure of how quickly a stock can be sold at a fair price and converted to cash.
Illiquid stocks are stocks that don't trade in high volume. Thus, having too many
shares of a stock that doesn't trade frequently would make for a position that cannot
necessarily be sold.
Load
A sales commission paid when purchasing shares of a mutual fund (called a front-end
load) or when redeeming shares of a mutual fund (called a back-end load).
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Management Fee
The money paid to the manager(s) of a mutual fund, annuity subaccount, or other
type of professionally managed investment. Also called an advisory fee.
Maturity/Maturity Date
The date on which the issuer of a certificate of deposit or a bond agrees to repay
the principal to the buyer.
MIBOR (Mumbai Interbank Offer Rate)
This is the rate of interest at which banks borrow funds from other banks, in marketable
size, in the Mumbai interbank market.
Money Market Fund
Mutual fund that invests typically in short-term government instruments (treasury
bills) and commercial paper (CPs) and Certificates of Deposit (CDs). These funds
tend to be lower-yielding, but less risky than most other types of funds.
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Net Asset Value
The worth, in market terms, for each unit of the fund. It is calculated as the market
value of all investments in the fund less liabilities and expenses divided by the
outstanding number of units in the fund. Most schemes announce their NAVs on a daily
basis.
Net Worth
The amount by which a person's assets exceed their liabilities.
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Open-End Fund
A mutual fund that has an unlimited number of shares available for purchase. Most
mutual funds are open-ended.
Operating Expenses
The cost of doing business. Operating expenses are deducted from revenues, and the
result is, hopefully, profits.
Option
A call option is a contract in which a seller gives a buyer the right, but not the
obligation, to buy the optioned shares of a company at a set price (the strike price)
for a certain period of time. If the stock fails to exceed the strike price before
the expiration date, the option expires worthless. A put option is a contract that
gives the buyer the right, but not the obligation, to sell the stock underlying
the contract at a predetermined price (the strike price). The seller (or writer)
of the put option is obligated to buy the stock at the strike price.
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PAN
Permanent Account Number. With effect 1st January 2008, quoting
of valid PAN is mandatory for all investments.
Portfolio
All the securities held by an individual, institution, or mutual fund.
Preferred Stock
Preferred stock pays a dividend on a regular schedule and is given preference over
common stock in regard to the payment of dividends or -- heaven forbid -- any liquidation
of the company. Their share prices tend to remain stable, and will generally not
carry the voting rights that common stock does.
Premium
The difference between the higher price paid for a security and the security's face
amount at issue.
Price-To-Earnings Ratio (P/E)
The share price of a stock, divided by its per-share earnings over the past year.
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Rate of Return
The difference between the price paid for a security and the security's sale price
including any cash distribution expressed as a percentage.
Record Date
The date on which a company's books are closed in order to identify share owners
and distribute quarterly dividends, proxies, or other financial documentation.
Risk Tolerance
The measurement of an investor's willingness to suffer a decline (or repeated declines)
in the value of investments while waiting and hoping for them to increase in value.
Generally investors are risk averse.
Rupee Cost Averaging
Strategy of making regular investments into a mutual fund and having earnings automatically
reinvested. This way, when the share price drops, more shares are bought at lower
prices.
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Sector Fund
A mutual fund that invests its shareholders' money in a relatively narrow market
sector, e.g., technology, energy, the Internet, or banking.
Securities
A fancy name for shares of stock, bonds, or any kind of financial asset that can
be traded.
Spread
The difference between the bid and ask price, i.e., the highest price offered and
the lowest priced asked for a security.
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Time Value Of Money (TVM)
The basic principle that money can earn interest, and so something that is worth
Re. 1 today will be worth more in the future if invested. This is also referred
to as future value
Total Return
The rate of return on an investment, including reinvestment of distributions.
Tracking Error
A divergence between the price behavior of a position or portfolio and the price
behavior of a benchmark.
Trustee
An individual who holds or manages assets for the benefit of another.
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Underwriter
A brokerage firm that helps a company come public in an initial public offering.
The firm underwrites (vouches for) the stock. When a company has been brought public,
the shares have been underwritten.
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Volatility
The degree of movement in the price of a stock or other security.
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Yield
Interest or market earnings on a bond or a fixed-income instrument.
Yield Curve
A line plotted on a graph that depicts the yields of bonds of varying maturities,
from short-term to long-term. The line, or "curve," shows the relationship between
short- and long-term interest rates.
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Zero-Coupon Bond
These bonds are so named because the coupon rate (the amount of interest paid) is
zero. Rather than paying interest on a periodic basis, these bonds are issued at
a fraction of their par value and increase in value as they approach maturity (e.g.,
U.S. savings bonds). Also known as an accrual bond.
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