FINANCIAL TERMS

Annuity: An investment option that makes regular payments in exchange of premium or series of premiums.

Appreciate: To increase in value

Arbitrage: Arbitrage is taking advantage of the price difference between buying and selling of same security on different exchanges or between spot and its future contract.

Assets: Asset is an economic resource controlled as a result of past events from which future economic benefits are expected to flow.

At the money: Option is at the money when strike price is same as the spot price of the underlying security.

Authorized Capital: It is the maximum amount of capital which a company can raise as stated in the memorandum of association. 

Bearish: Market sentiment that price of stocks will go down.

Bonus: The amount paid as return in with profit policy, declared during policy term or at maturity.

Bonus Issue: Issue of additional fully paid shares to shareholders without any cost in proportion of shares they already own.

Budget: It is an estimate of income and expenses for a period which is used as guideline to spend and save.

Bullish: Market sentiment that price of stocks will rise. 

Capital Gains: Profit earned from sale of stocks, mutual fund units and real estate. Capital gain can be short term or long term depending on the holding period.

Compound Interest: Interest computed on principal plus interest accrued during previous periods of investment.

Corpus: The amount of money available for investing. If already invested, it is the current value of scheme’s portfolio.

Derivatives: The financial instruments which derive their value from asset they represent.

Debt Funds: It is a class of mutual funds that invests in fixed income securities with the objective of generating steady income while preserving capital.

Dividends: Payment made by companies to shareholders and by mutual funds to unit holders.

Dividend Yield: The dividend company has paid out to shareholders expressed as a percentage to the market value of the share.

Emergency Fund: Money in liquid investments to take care of emergencies. Minimum six months of living expenses should be set aside as emergency fund.

Endowment Plans: An insurance plan that provides risk cover and return on investment.

ELSS (Equity Linked Saving Schemes):The funds that offer tax deduction on investment.

Equity: A stock or other security that represents ownership interest in a company or assets.

Fixed Deposit: Funds placed in bank, company or post office at a fixed rate of interest.

Fixed Maturity Plans (FMPs): Debt funds which have exposure to fixed income securities with fixed tenure.

Fixed Rate Loan: Interest charged on loan that remains fixed during the tenure of the loan.

Floating Rate Loan: Interest rate is adjusted during the tenure of the loan as the benchmark rate changes.

Gilt Funds: These funds invest only in government securities, suitable for risk averse investors.

Group Insurance: Insurance plan that covers group of people, for example policy taken by employer to provide life cover to employees.

Hedging: A risk management strategy to protect investment or portfolio against loss.

Human Life Value: It is an estimate of financial value of human life. It helps to assess how much financial loss family will incur in event of individual’s death and life insurance required to protect the family.

In the Money: Call option is in the money if strike price is less than the underlying security spot price. Put option is in the money if strike price is more than the underlying security spot price.

Junk Bonds: Bonds listed as below investment grade by the bond rating agencies.

Key Performance Indicators(KPI): A set of measures that help to determine if a company is reaching its performance and operational goals. 

Liabilities: Are obligations arising out of past or current transactions which are settled with transfer of economic benefits.

Life Annuity: Annuity plan that makes regular income payments till the policy holder is alive.

Lock-in period: The time period during which investment made cannot be withdrawn.

Market Value: The value asset will fetch if sold in the market.

Money Back Plans: Plans in which survival benefits are disbursed in installments through the policy term rather than lump sum at the end.

Monthly Income Plans: Fixed income schemes where objective is to generate stable returns on monthly basis.

Net Asset Value(NAV): It is the per unit market value of the fund assets minus all its liabilities at a specified date and time.

Nominee: The person nominated by policy holder to receive the policy benefits in the event of death.

Open-ended fund: The funds from which investors can enter and exit at the prevailing NAV any time.

Open Interest: It is the total number of contracts outstanding in the market.

Out of the Money: Call option is out of the money if strike price is more than the underlying security spot price. Put option is out of the money if strike price less than the underlying security spot price.

Overvalued: A stock that is selling at price higher than its intrinsic value.

Participative Plans: These are with profit plans which qualify for bonus or guaranteed addition.

Post Office Schemes: Saving schemes offered at post offices in India like PPF, MIS etc.

Premium: The amount paid periodically to insurance company to cover risk.

Prudent: Is being thrifty and wise in the consumption of resources.

Quick Assets: The assets which can be converted into cash quickly. Quick assets generally include cash, marketable securities and accounts receivable. 

Rebalancing: It is process of realigning weights to the assets in the portfolio in order to achieve target asset allocation and desired investment objective/goal.

Recurring Deposit: It is a tool for making small regular savings. It is offered by both banks and post office.

Riders: Additional covers which can be added to a policy for a cost.

Small Saving Schemes: Schemes offered to encourage savings in small amount at regular intervals.

Sum Assured: Amount of cover on insurance policy which is minimum assured to be paid.

Systematic Investment Plan: A plan in which pre fixed amount is invested in mutual fund scheme at regular intervals.

Systematic Withdrawal Plan: A mutual fund plan in which pre decided amount withdrawal is allowed at regular intervals.

Term Plans: An insurance plan that provides risk cover during policy term but no return on the premium paid.

Terminal Bonus: It is one time bonus that is paid at the maturity of the policy.

Undervalued: A stock that is selling at price lower than its intrinsic value.

Unit Holder: A person holding units in a scheme.

Value Stocks: Stocks of companies that are undervalued and there is potential for growth.  

Wealth: The difference between market value of owned (assets) and owed (liabilities).

Whole Life Plans: A class of insurance policy that provides cover throughout the lifetime.

Yield: It is the total return earned from holding a particular security. 

Zero Coupon Bond: Bond which is issued at discount to face value. It does not pay interest and is redeemed at face value on maturity.