Finance Glossary

AIS (Annual Information Statement)

A tax document issued by the Income Tax Department showing all your financial transactions in a year — salary, dividends, interest, property sales, and more. Helps verify your tax filings.

AMC (Asset Management Company)

A company that pools investor money and manages mutual funds on their behalf. Examples: HDFC AMC, SBI Funds Management, Nippon India AMC. Regulated by SEBI.

Amortisation

The process of gradually paying off a loan through scheduled periodic payments, each covering both principal and interest. Over time, the interest portion shrinks and principal rises.

Annuity

A regular income stream received in exchange for a lump sum investment, typically used in retirement products like NPS and insurance plans. Can be fixed or variable.

Annual Return

The percentage change in value of an investment over a full year. A 12% annual return on ₹1 lakh means your investment became ₹1.12 lakh.

Arbitrage

Making near risk-free profit by exploiting price differences for the same asset in two different markets simultaneously. Arbitrage funds use this strategy for low-risk, tax-efficient returns.

ASBA (Application Supported by Blocked Amount)

The standard IPO application method in India. Funds remain blocked in your bank account and are only debited if shares are allotted to you.

Asset Allocation

Distributing investments across asset classes — equity, debt, gold, real estate — based on your goals, risk appetite and time horizon. The most important investment decision you make.

AUM (Assets Under Management)

The total market value of all investments managed by an AMC or fund manager on behalf of investors. A larger AUM can sometimes limit a fund's ability to outperform.

Balance Transfer

Moving an existing home loan from one bank to another for a lower interest rate or better terms. Most effective in the early years of a loan.

Bear Market

A market condition where prices fall 20% or more from recent highs. Normal and historically followed by recoveries — don't stop your SIP during a bear market.

Blue Chip Stock

Shares of large, financially stable, reputable companies with a long track record — think TCS, Reliance, HDFC Bank. Lower risk than midcaps but slower growth.

Book Value

A company's net worth per share: (Total Assets − Total Liabilities) ÷ Shares Outstanding. Comparing market price to book value helps assess valuation.

Bond

A fixed income instrument where you lend money to a government or company and earn a fixed interest rate. Safer than stocks but lower returns over the long term.

Bonus Share

Additional shares given free to existing shareholders in a fixed ratio, funded from retained earnings. Doesn't change the total value of your holding — price drops proportionally.

BSE (Bombay Stock Exchange)

India's oldest stock exchange, founded in 1875. Home to the Sensex index (30 stocks) and over 5,000 listed companies.

Bull Market

A market condition where prices rise 20%+ from recent lows, driven by economic optimism and strong earnings. Stay disciplined — greed peaks at bull market tops.

CAGR (Compound Annual Growth Rate)

The uniform annual growth rate over multiple years. If ₹1 lakh became ₹1.76 lakh in 5 years, the CAGR is 12%. The most useful number to compare investment performance.

Capital Gains

Profit from selling a capital asset — shares, property, gold — at a higher price than purchase. Classified as short-term (STCG) or long-term (LTCG) based on holding period.

CIBIL Score

A three-digit credit score (300–900) from TransUnion CIBIL based on repayment history. Above 750 is good; above 800 is excellent. Key for loan approvals and interest rates.

Circuit Breaker

An automatic trading halt when a stock/index moves beyond its daily limit (5%, 10%, or 20%). Prevents panic-driven extreme moves and protects retail investors.

Commodity

Physical goods like gold, silver, crude oil, and agricultural products traded on commodity exchanges (MCX, NCDEX). Invest indirectly via Gold ETFs or commodity mutual funds.

Compound Interest

Interest calculated on both principal and accumulated interest. At 12% annually, ₹1 lakh doubles in 6 years and grows 10× in 20 years. The foundation of SIP wealth creation.

Corpus

The total accumulated pool of money in an investment or fund. "Retirement corpus" = the total savings needed to fund your retirement lifestyle.

Credit Rating

Assessment of a borrower's ability to repay debt by agencies like CRISIL, ICRA, CARE. Ranges from AAA (safest) to D (defaulted). Invest only in AA+ or above rated bonds.

Credit Utilisation Ratio

Percentage of your total available credit limit currently in use. Keep below 30% to maintain a healthy CIBIL score.

CRR (Cash Reserve Ratio)

Minimum percentage of deposits banks must keep with RBI (~4.5%). RBI raises CRR to reduce money supply and control inflation.

Debenture

A long-term bond issued by a company backed by its general creditworthiness. Pays fixed interest. Non-convertible debentures (NCDs) are common in India.

Demat Account

An electronic account holding shares and securities in digital form, replacing physical certificates. Mandatory for buying/selling stocks. Held with NSDL or CDSL via your broker.

Debt-to-Equity Ratio

Total debt divided by shareholders' equity. Higher ratios mean more financial leverage and risk. Compare within the same sector for meaningful context.

Deflation

A sustained fall in general price levels — signals weak economic demand and can lead to prolonged recessions.

DII (Domestic Institutional Investor)

Indian institutions — LIC, mutual funds, banks, pension funds — investing in domestic stock markets. They often counterbalance FII selling and stabilise markets.

Direct Plan

A mutual fund scheme purchased directly from the AMC without a distributor. Lower expense ratio (0.5–1% less than regular) leads to significantly higher returns over 10+ years.

Diversification

Spreading investments across different assets, sectors, and geographies to reduce risk. If one falls, others may hold. "Don't put all your eggs in one basket."

Dividend

A portion of a company's profit distributed to shareholders. Dividends are taxed in your hands at your income tax slab rate since FY 2020-21.

Dollar-Cost Averaging (DCA)

Investing a fixed amount at regular intervals regardless of market levels — you buy more units when prices are low. This is exactly what SIP does.

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation. Measures a company's core operating profitability independent of financing decisions.

ELSS (Equity Linked Savings Scheme)

A tax-saving mutual fund with a 3-year lock-in — the shortest lock-in among all Section 80C instruments. Historically the highest-returning 80C option over the long term.

EMI (Equated Monthly Instalment)

A fixed monthly loan repayment combining principal and interest. Early EMIs are mostly interest; later ones mostly principal.

EPF (Employees' Provident Fund)

Mandatory retirement savings for salaried employees. Employee and employer each contribute 12% of basic salary. Tax-free on withdrawal after 5 years of continuous service.

EPS (Earnings Per Share)

Net profit attributable to shareholders ÷ total shares outstanding. A rising EPS over years indicates growing profitability. Key input for the PE ratio valuation.

Equity Mutual Fund

A mutual fund investing primarily in stocks. Suitable for 5+ year goals. Historically delivers 12–15% CAGR over long periods — beats inflation by a wide margin.

ETF (Exchange Traded Fund)

A fund tracking an index (e.g., Nifty 50) traded on a stock exchange like a share. Combines mutual fund diversification with intraday liquidity. Needs a demat account.

Exit Load

A fee deducted when you redeem mutual fund units before a specified holding period (usually 1 year). Typically 1% of redemption amount. Zero after the holding period.

Expense Ratio

Annual fee charged by a mutual fund as a % of AUM, deducted from NAV daily. Direct plans: 0.1–0.5%. Regular plans: 1–1.5% higher. Matters a lot over 20 years.

Face Value

The original nominal value of a share (₹1 or ₹10 in India). Dividends and bonus ratios are based on face value — unrelated to market price.

FD (Fixed Deposit)

A bank deposit earning a fixed interest rate for a specified period. Capital guaranteed up to ₹5 lakh per bank under DICGC insurance. Loses to inflation over long periods.

FII (Foreign Institutional Investor)

Foreign entities — hedge funds, pension funds, sovereign wealth funds — investing in Indian stock and bond markets. Their buying/selling significantly influences market direction.

Fixed Rate (Loan)

A loan interest rate that stays constant throughout the tenure. Provides EMI certainty but typically 1–2% higher than floating rates at origination.

Floating Rate (Loan)

A loan interest rate linked to an external benchmark (EBLR, repo rate) that resets periodically. Most home loans in India are floating rate.

FOIR (Fixed Obligation to Income Ratio)

Percentage of gross monthly income committed to all EMI obligations. Banks allow a maximum FOIR of 50–55% when evaluating home loan eligibility.

FMP (Fixed Maturity Plan)

A closed-ended debt mutual fund with a predefined maturity date investing in bonds matching the fund's tenure. No premature redemption before maturity.

FoF (Fund of Funds)

A mutual fund that invests in units of other mutual funds. Broader diversification but higher overall expense ratio (own + underlying fund costs).

Foreclosure

Early repayment of the entire outstanding loan. RBI mandates zero prepayment penalty for floating rate home loans.

Form 16

TDS certificate issued by your employer showing total salary paid and tax deducted. Essential for filing your Income Tax Return (ITR).

GDP (Gross Domestic Product)

Total monetary value of all goods and services produced in India in a year. Growing GDP generally supports rising stock markets. India targets 7%+ GDP growth.

Gilt Fund

A mutual fund investing exclusively in government securities. Zero credit risk but sensitive to interest rate changes. Suitable for conservative investors.

Gold ETF

An exchange-traded fund backed by physical gold stored in secure vaults. Each unit ≈ 1 gram of gold. Avoids storage risk and making charges of physical gold.

Gratuity

A lump sum paid by an employer to an employee completing 5+ years of continuous service. Formula: (Last salary × 15 × years of service) ÷ 26. Tax-exempt up to ₹20 lakh.

Hedging

Taking an offsetting financial position to reduce or eliminate risk. Buying put options on your portfolio is hedging. Insurance is the most common form of hedging.

HRA (House Rent Allowance)

A salary component for rent, partially tax-exempt under the old regime. Exemption = minimum of actual HRA, 40%/50% of basic salary, or actual rent minus 10% of basic salary.

Hybrid Fund

A mutual fund investing in both equity and debt. Aggressive hybrid (65–80% equity) suits moderate-risk investors seeking growth with some stability.

Index Fund

A passively managed mutual fund replicating a market index like Nifty 50. Lower cost than active funds; delivers market returns. Best starting point for new investors.

Indexation

Adjusting the purchase price of an asset for inflation using the Cost Inflation Index (CII) to reduce long-term capital gains tax on debt funds and property.

Inflation

Sustained rise in general prices that erodes purchasing power. At 6% inflation, ₹1 lakh today buys only what ₹74,000 bought 5 years ago. Investments must beat inflation to grow real wealth.

Interim Dividend

A dividend declared and paid before the company's annual accounts are finalised — typically mid-year. Board can declare it without shareholder approval at an AGM.

IPO (Initial Public Offering)

The first public sale of a company's shares on NSE/BSE. Allows companies to raise capital; allows promoters to partially exit. Apply via ASBA through net banking.

IRDAI

Insurance Regulatory and Development Authority of India. Regulates life and general insurance companies and protects policyholder interests.

ITR (Income Tax Return)

Annual declaration of income, deductions and tax filed with the Income Tax Department. Deadline: July 31 for individuals. Mandatory above ₹3 lakh income (new regime).

KYC (Know Your Customer)

Mandatory identity verification for all financial accounts in India. For mutual funds, it's a one-time process using PAN and Aadhaar. Central KYC (CKYC) makes it valid across all institutions.

Large Cap Stock

SEBI defines large cap as the top 100 companies by market cap on NSE/BSE. Stable and well-established with lower volatility than mid/small caps.

Lien

A legal claim on an asset used as collateral. Banks place a lien on your FD or property until the loan is fully repaid. You cannot break a lien-marked FD without bank approval.

Limit Order

An order to buy or sell a stock at a specific price or better. A buy limit at ₹500 executes only at ₹500 or lower. Guarantees price but not execution.

Liquidity

How easily an investment converts to cash without significant loss. Savings accounts and liquid funds: high liquidity. Real estate and PPF during lock-in: low liquidity.

Lock-in Period

Minimum holding period before withdrawal. ELSS: 3 years. PPF: 15 years (partial after 7). NPS: until age 60. Tax-saving FD: 5 years.

LTCG (Long-Term Capital Gains)

Profit from selling equity held over 12 months or debt/property held over 36 months. Equity LTCG above ₹1.25 lakh taxed at 12.5% (FY 2025-26).

Lumpsum Investment

A one-time investment of a large amount. Better than SIP when markets are undervalued; riskier near market peaks. Many investors combine both strategies.

Market Cap (Market Capitalisation)

Total market value of all outstanding shares: Share Price × Total Shares. Classifies companies as large cap (top 100), midcap (101–250), or small cap (251+) by SEBI.

Market Order

An order to buy/sell a security immediately at the best available price. Guarantees execution but not exact price. Can result in slippage for thinly traded stocks.

MCLR (Marginal Cost of Funds-based Lending Rate)

A bank's internal benchmark for pricing loans. Older home loans (before Oct 2019) are typically on MCLR; newer loans use the external benchmark (EBLR).

Midcap Stock

Companies ranked 101–250 by market cap (₹5,000–₹20,000 crore). Higher growth potential than large caps but more volatile. Best held for 7+ years.

Moat (Economic Moat)

A company's durable competitive advantage — brand strength, network effects, cost leadership, or switching costs. Companies with wide moats sustain high ROE for years.

Moratorium

RBI-permitted temporary suspension of EMI payments during extreme distress (e.g., COVID-19). Interest continues to accrue — increases total loan cost significantly.

Mutual Fund

A professionally managed investment vehicle pooling money from many investors and investing in stocks, bonds, or other assets. SEBI-regulated. Available as direct/regular and open/closed-ended.

NAV (Net Asset Value)

Per-unit price of a mutual fund: (Total Assets − Liabilities) ÷ Units. Calculated daily. You buy/sell units at NAV. A high NAV is not "expensive" — it means the fund has grown well.

NBFC (Non-Banking Financial Company)

A company offering loans or investments without a banking licence (e.g., Bajaj Finance, Muthoot Finance). Deposits with NBFCs are NOT covered by DICGC insurance.

Net Worth

Total assets (cash, property, investments) minus total liabilities (loans, dues). The single best measure of your financial position. Aim to grow it 15%+ annually.

New Tax Regime

Simplified tax structure with lower slab rates but no major deductions. Default from FY 2024-25. Zero tax for income up to ₹12 lakh under FY 2025-26 rules (87A rebate).

NFO (New Fund Offer)

Launch of a new mutual fund scheme at ₹10/unit. Low NFO price does NOT mean "cheap" — the fund has no track record. Prefer proven funds over NFOs.

Nifty 50

Benchmark index of the 50 largest companies on NSE by free-float market cap. Base: 1000 (Nov 1995). As of March 2026, around 22,500.

NPS (National Pension System)

Government-backed retirement savings scheme (18–70 years). Extra ₹50K deduction under 80CCD(1B) beyond 80C limit. 40% of corpus must fund an annuity at retirement.

NSC (National Savings Certificate)

Post office savings scheme with a 5-year tenure (~7.7% interest). Investment qualifies for Section 80C deduction up to ₹1.5 lakh.

NSE (National Stock Exchange)

India's largest stock exchange by trading volume, launched in 1992. Uses electronic order matching. Home to Nifty 50. Handles ~₹1 lakh crore in equity trades on a typical day.

OFS (Offer for Sale)

Mechanism where existing shareholders sell their stake to the public. Company itself receives no proceeds — money goes to the selling shareholders.

Old Tax Regime

Pre-2020 tax structure with slabs of 5%, 20%, 30% and 70+ deductions (80C, HRA, LTA, 80D). Beneficial for those with home loans, HRA, or large deductions.

Open-Ended Fund

A mutual fund where units can be bought/sold at any time at prevailing NAV. Most equity and debt funds in India are open-ended. Full liquidity after lock-in period.

PE Ratio (Price-to-Earnings)

Stock price ÷ Earnings per share. PE of 20 means you pay ₹20 for every ₹1 of earnings. Higher PE = higher growth expectations. Compare within the same industry.

Portfolio

Your total collection of investments across all asset classes — equity, debt, gold, real estate, cash. Well-diversified portfolio reduces risk without sacrificing much return.

PPF (Public Provident Fund)

Government savings scheme with 15-year tenure (~7.1%). Investment, interest, and maturity are fully tax-free (EEE status). Max ₹1.5 lakh/year. Qualifies for 80C.

Prepayment

Paying extra principal on a loan before the scheduled EMI date. Even one prepayment in the first 5 years can save lakhs in interest. Zero penalty on floating rate home loans.

Price-to-Book Ratio

Market price per share ÷ book value per share. Below 1 may indicate undervaluation; above 5 suggests high growth expectations. Most useful for banks and financial companies.

Processing Fee

One-time fee charged by a lender to process a loan application (0.5–1% of loan amount). Factor this into your total loan cost comparison across banks.

Promoter Holding

Percentage of shares held by the company's founders. High and stable promoter holding (above 50%) is positive. Pledging of promoter shares is a red flag to watch.

QIB (Qualified Institutional Buyer)

SEBI-defined sophisticated institutional investors eligible for 50% of IPO allocation. Includes mutual funds, FIIs, insurance companies, and pension funds.

Quick Ratio

(Cash + Short-term Investments + Receivables) ÷ Current Liabilities. Measures ability to meet immediate obligations without selling inventory. A ratio above 1 is generally healthy.

RD (Recurring Deposit)

Fixed monthly deposit in a bank earning a fixed interest rate. Similar to SIP but for fixed income. Good for building a short-term fund systematically.

Real Return

Investment return after adjusting for inflation. FD at 7% with 6% inflation = 1% real return. Equity SIPs targeting 12% at 6% inflation give ~5.7% real return — true wealth creation.

Rebalancing

Periodically restoring your portfolio to its target allocation. If equity rose from 60% to 70%, sell some equity and buy debt. Enforces "sell high, buy low." Recommended annually.

Regular Plan

A mutual fund scheme purchased through a distributor with trail commission embedded in a higher expense ratio. Over 20 years, regular vs direct plan difference can be 15–25% of corpus.

Repo Rate

Rate at which RBI lends overnight money to commercial banks (~6.5%). When RBI raises repo rate, home loan EMIs rise. Primary tool to control inflation.

Reverse Repo Rate

Rate at which RBI borrows from commercial banks. Banks park excess funds with RBI at this rate. Used to absorb liquidity and reduce inflation.

Rights Issue

Company offering new shares to existing shareholders at a discount. You can subscribe (buy), renounce (sell rights), or let them lapse. Check the discount vs market price before deciding.

Risk Appetite

Your capacity and willingness to tolerate investment losses. Depends on age, income stability, goals, and temperament. Align your asset allocation to your actual risk appetite — not your aspired one.

ROE (Return on Equity)

Net profit ÷ Shareholders' Equity × 100. An ROE consistently above 15% over 5+ years signals a quality business with efficient management.

ROCE (Return on Capital Employed)

EBIT ÷ Capital Employed × 100. Measures overall efficiency including both equity and debt capital. ROCE > cost of capital means the company is creating value.

SCSS (Senior Citizens Savings Scheme)

Government savings scheme for citizens aged 60+. Pays quarterly interest at 8.2% (Q1 FY26). Max ₹30 lakh per account. Qualifies for 80C deduction.

SEBI

Securities and Exchange Board of India — the capital markets regulator established in 1992. Regulates stock exchanges, mutual funds, brokers, and listed companies. Your first line of investor protection.

Section 80C

Income tax deduction up to ₹1.5 lakh for ELSS, PPF, EPF, NSC, 5-year FD, LIC premium, home loan principal, and children's tuition. Available only under the Old Tax Regime.

Section 87A Rebate

Income tax rebate that reduces your tax to zero. FY 2025-26 New Regime: zero tax for taxable income up to ₹12 lakh (after ₹75K standard deduction). Max rebate: ₹60,000.

Sensex

Benchmark index of the 30 largest companies on BSE. Base: 100 (April 1979). India's oldest stock market index. A Sensex above 73,000 as of 2026.

SIP (Systematic Investment Plan)

Investing a fixed amount regularly (monthly/weekly) in a mutual fund. Auto-deducted from your bank account. The most practical way for salaried individuals to invest in equity markets. Start from ₹500/month.

Small Cap Stock

Companies ranked 251+ by market cap (below ₹5,000 crore). High growth potential but significant volatility. Suitable only for 7+ year horizons as part of a diversified portfolio.

STCG (Short-Term Capital Gains)

Profit from selling equity within 12 months, taxed at 20% (FY 2025-26). For debt funds, gains within 36 months are taxed at your income slab rate.

Step-Up SIP

A SIP where monthly contribution increases each year — e.g., 10% annually. Aligns with salary hikes and dramatically grows your corpus vs a flat SIP over 20 years.

Stop Loss

A pre-set order to automatically sell a security when its price falls to a specified level. Caps downside on trading positions. Not relevant for long-term SIP investors.

STP (Systematic Transfer Plan)

Auto-transferring a fixed amount from one fund (liquid/debt) to another (equity) at regular intervals. Useful for deploying a lump sum gradually into equity.

SWP (Systematic Withdrawal Plan)

Regular withdrawal of a fixed amount from your mutual fund corpus. Popular retirement strategy: invest lump sum in a balanced fund, withdraw monthly for income.

T+1 Settlement

India's trade settlement system where share ownership transfers the next business day after a transaction. Makes Indian markets among the fastest-settling globally.

Tax Harvesting

Selling investments at a loss before March 31 to offset capital gains and reduce tax liability. You can immediately repurchase the same investment. Most effective for equity funds near the ₹1.25 lakh LTCG limit.

TDS (Tax Deducted at Source)

Tax withheld at the point of payment — on salary, FD interest above ₹40K/year, rent above ₹2.4L/year. Visible in Form 26AS. Excess TDS claimed as refund while filing ITR.

Tenure

Duration of a loan. Longer tenure = lower EMI but far more total interest paid. A 30-year vs 20-year ₹50L loan at 8.5% costs ₹34 lakh more in interest.

Token Amount

An advance payment (1–2% of property value) to block a property before the formal agreement. Usually non-refundable if the buyer backs out. Do legal due diligence before paying.

Underwriting

Guarantee by an investment bank to purchase all unsold IPO shares at the issue price. Ensures the company raises its target capital.

Upper Circuit / Lower Circuit

Daily price movement limits for stocks (5%, 10%, or 20%). Trading halts if the limit is hit. Protects investors from extreme intraday manipulation.

Valuation

Estimating the intrinsic fair value of a company using methods like DCF, PE multiples, or Price-to-Book. A stock is worth buying only when price is below intrinsic value.

Value Investing

Buying stocks trading significantly below their estimated intrinsic value with a margin of safety. Popularised by Benjamin Graham and practised by Warren Buffett. Requires patience.

Venture Capital

Early-stage funding for high-growth startups in exchange for equity. High risk, expectation of exponential returns. Accessible to retail investors indirectly via AIF funds.

Volatility

Degree of price variation over time. High volatility = large price swings. Long-term investors should embrace equity volatility as the price of superior returns.

VRS (Voluntary Retirement Scheme)

Option for employees to retire before superannuation in exchange for a severance package. Tax-exempt up to ₹5 lakh under Section 10(10C).

Wealth Creation

Growing net worth over time through disciplined saving, investing in growth assets, and harnessing compounding. Formula: Start early + Invest regularly + Stay invested.

Winding Up

Closing a mutual fund scheme and returning money to unit holders — usually when a fund is too small or the AMC discontinues it. Unit holders receive proportional NAV payouts.

Working Capital

Current Assets minus Current Liabilities. Measures short-term operational health. Positive working capital means the company can meet near-term obligations.

XIRR

Extended Internal Rate of Return — calculates the annualised return for investments with irregular cash flows, like a SIP. More accurate than CAGR for multi-investment scenarios. Use =XIRR() in Excel.

Yield

Return on an investment as a % of its current market price. For bonds, yield moves inversely with price — when price rises, yield falls.

Dividend Yield

Annual dividend per share ÷ Current stock price × 100. Useful for income investors — always check if the dividend is sustainable before chasing a high yield.

Zero-Coupon Bond

A bond sold at a deep discount that pays no periodic interest. Profit = difference between purchase price and face value at maturity. Useful for funding specific future liabilities.