Financial Glossary

Debt Funds: These funds invests in fixed income instruments, such as Corporate and Government bonds, Government securities, Commercial Papers and Debentures, Bank certificates of  Deposits and money Market instruments like Treasury bills etc. These are less volatile, relatively safer investments and are suitable for Income Generation. Debt Funds are categorized into different types based on the kind of securities they invest in and the maturity (time horizon) of these securities. Overnight Funds, Liquid Funds, Ultra-Short Duration Funds, Corporate Bond Funds are examples of debt funds.

ELSS: ELSS (Equity Linked Savings Scheme) is a diversified equity mutual fund. It is one such investment option that provides tax saving benefits along with higher growth potential over time compared to other tax saving options. Being an Equity Oriented investment product it is susceptible to market volatility and carry similar risk-return profile as equity funds.

Rupee Cost Averaging: SIP works on the principle of rupee cost averaging. What this means is that the average costs of units bought is always lower than the average market price of units. Since, our monthly investment amount is fixed, we automatically buy more units when prices are low and buy fewer units when prices are high. This automatically brings down our average costs than the average market price during the period. So, eventually when unit price soar, investors get dual benefit of higher unit prices and lower average cost.

Sharp Ratio:  Sharp ratio is  a measure of risk adjusted returns generated  by mutual funds.

SIP: Systematic Investment Plan. It is a smart mode of investing in mutual fund schemes. Through SIP we can invest a pre-determined amount (as low as 500 rupees per month) , on a particular date of every month, into mutual funds, by giving standing instructions to debit our bank accounts. When we invest through SIP, we buy units regularly (every month) which helps to average out our costs in volatile market conditions.

STP: Systematic Transfer Plan is a way of transferring part amounts at regular intervals from one scheme to another scheme of the same mutual fund house. Most fund houses have a daily, weekly, monthly and quarterly interval options to transfer amount. For e.g. a lumpsum amount invested in a short term debt fund or a liquid fund can be systematically transferred to an equity fund to gain benefit of market volatility.

Rolling Returns: Rolling return, also known as “rolling period returns” or “rolling time periods,” is the annualized average return for the selected period beginning at a given start date and advancing one day sequentially till the last available date. Rolling returns, measures the fund’s performance across all timescales. It helps investor gauge performance across
blocks of time, capturing market behavior over multiple periods. Thus, rolling returns are useful for examining the behavior of returns for holding periods, similar to those actually experienced by investors.

Demat Account: A Demat account (short for Dematerialized account) is an account to hold your shares or other financial securities (equity or debt) in electronic form. In India Demat accounts are maintained by two depository organisations, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).

Depository: A Depository is a link between the companies listed in the stock exchange and you. It helps you buy shares in a paperless manner (by maintaining demat accounts). They issue shares through a depository participant (DP) (banks / financial institutions / brokers) which is responsible for the final transfer of shares.

Market Cap of a company: Market Capitalisation or “Market Cap” of a company is the total value of a company’s outstanding shares in terms of Rupees. We can arrive at a company’s market cap by multiplying it’s share outstanding by the current market value of one share. This, being simple in calculation and effective in risk assessment, is used as determiner of a company’s size and is helpful in making decision for buying stocks.

Stock Exchange: A Stock Exchange is a platform where stock, derivatives and other financial instruments are traded (bought and sold). Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Both exchanges follow the same trading mechanism, trading hours, settlement process, etc. Almost all the significant firms of India are listed on both the exchanges.

Bond: It is a fixed income investment. In this process an investor, who buys the bond, actually loans money to the entity which sales the bond and borrows the fund for a specific period at a fixed interest rate. Bonds are used typically by governments or corporate to raise money for variety of projects. The owner of bonds are creditors of the issuer of bonds.  A bond includes the terms of the loan, interest payment (called coupon) that will be made and the time at which the loaned fund will be paid back (called the maturity date). The interest rate is called the coupon rate.

GDP: GDP or Gross Domestic Product is the monetary value of all the finished goods and services produced within a country in a given time period. It provides a framework for investment decision making. GDP calculation can be done through three approaches based on Income, Spending or Production. It is commonly used as an indicator of economic health of a country. Net GDP growth over a period is Gross GDP growth less the inflation measured over the same period.

Inflation: Inflation is the rate at which the average price level for goods and services is increasing and the purchasing power of currency is decreasing. Inflation is expressed in percentage over a period of time. For example, if today the price of sugar is Rs 10 per Kg and you have Rs 100, you can buy 10 kgs of sugar. Now, if the rate of inflation is 10% per year, than after 1 year, cost of sugar will increase to Rs 11 per Kg and you can buy 100/11 = 9 Kgs of sugar or in other words purchasing power of your Rs 100 will decrease.

Market Cap of a company: Market Capitalisation or “Market Cap” of a company is the total value of a company’s outstanding shares in terms of Rupees. We can arrive at a company’s market cap by multiplying it’s share outstanding by the current market value of one share. This, being simple in calculation and effective in risk assessment, is used as determiner of a company’s size and is helpful in making decision for buying stocks.