Alpha - With the help of Alpha we can measure Portfolio Manager's performance.
AMC - Asset Management Company. It is a company set up primarily for managing the investment of mutual funds and makes investment decisions in accordance with the scheme objectives, deed of Trust and other provisions of the Investment Management Agreement.
Arbitrage - Arbitrage is simultaneous purchase of one asset agianst the sale of the same or equivalent asset to create a riskless profit arising from price discrepencies.
Arbitrage Fund - Fund Managers of this type of funds aim to take advantage of the pricie differential between the cash and the derivatives markets.
Arithmetic Mean - The arithmetic mean of a set of values is the ratio of their sum to the total number of values in the set.
AUM - Asset Under Management .
Bear Market - A market in which prices are falling.
Beta - Beta is the measure of sensitivity of movement of a stock/security or portfolio vis-a-vis that of market as a whole. It is alos a measure of systematic risk.
Bond - A certificate of debt, usually long-term, whereby the issuing company normally promises to pay the bondholder a specified amount of interest for a specified length of time and to repay the principal on the expiration date.
Book Value - Book Value per Share is the net worth divided by number of outstanding equity shares.
Broad Money(M3) - Narrow Money(M3) + Time Deposits.
Bull Market - A market in which prices are rising.
Default Risk - Default Risk is the probability that borrowers could default on a commitment to pay their promised dues. It is also know as credit risk or counterparty risk. In investment world, debt instruments are pre-committed, so their payouts/dues are inherited default risk.
Cash Reserve Ratio(C.R.R.) - Cash reserve Ratio (CRR) in India is the amount of funds that the commercial banks have to keep as reserve either as cash or as deposits with RBI .
Compound Interest - Compound interest, a kind of interest in which the bank calculates interest based on your previous balance plus your last period's interest.
Compound Return - Compound interest is calculated each period on the original principal and all interest accumulated during past periods. Although the interest may be stated as a yearly rate, the compounding periods can be yearly, half-yearly, quarterly, or even continuously.
Consumer Price Index(CPI) - A Consumer Prices Index (CPI) is designed to measure changes over time in the level of retail prices of selected goods and services on which consumers of a defined group spend their incomes.
CPI = (Total cost of a fixed basket of goods and services in the current period /Total cost of the same basket in the base period) X 100
Cost of Living - The cost of living of a defined group of consumers, at any point of time, means the cost of the goods and services consumed by an average unit of the group (unit being a household or a family, etc.) to attain a certain level of satisfaction or level of living or level of utility, etc. The basket of goods and services consumed would depend on (a) the price system prevailing at a given point of time, (b) the tastes and preferences of the group at that time and (c) the level of living (or satisfaction) being considered.
Cost of Living Index - An index may aim to measure the effects of price changes on the cost of achieving a constant standard of living (i.e. level of utility or welfare) as distinct from maintaining the purchasing power to buy a fixed consumption basket of goods and services. This concept is called a Cost of Living Index (COLI).
Derivatives - Derivative means to derive its value from some underlying asset. This underlying asset can be security, commodity, bullion, currency, or anything else. Derivative may be a forward, futures, option or any other hybrid contract of pre-determined fixed duration.
Diversified Equity Fund - This type of funds invest across various sectors, sezes and industries with the objective of beating broad market index. Deversisfied Equity Funds are suitable for long term investors due to benefit of diversification, which are also comparitvely lower risk fund.
Dividend Yield Fund - A dividend fund is a mutual fund which can provide investors with income from common and preferred shares of stockwhich yield dividends in cash and stock (in some cases) on a regularly basis. A dividend fund is a good for investors who are seeking regular income payments over appreciation.
Drifting Asset Allocation - Buy and Hold strategy without any rebalancing of portfolio is known as drifting asset allocation.
Dynamic Asset Allocation - In dynamic asset allocation , asset mix mechanically changed in accordance to market condition.
Exchange Traded Fund(ETF) - Exchange Traded Funds are open-end funds that trade on the exchang like shares. It's unit price keeps changing during the day
E-Gold - means electronic gold. Investor can held gold in the form of electronic gold certificate in E-Gold account. In this form , Longer term investors can hold gold at lower cost.
ELSS - ELSS or Equity Linked Savings Schemes is a special category of diversified equity funds. Investment in ELSS in a financial year enjoys a tex deduction under Sec.80C of the Income Tax Act. Investors can buy the units of ELSS to claim tex deduction at any time of the financial year. There is three years lock-in period in ELSS from the date of purchase of units.
Expenses Ratio - It is the ratio of Annual Recurring Expenses and Annual Income.
Financial Blood-Test Report(FBR) - Financial Bllod-Test Report is a short description which gives investor's financial position at a particular point of time.
Financial Goal - The monetary objectives of an individual that are often determined by their future requirements for funds.
Fixed Asset Allocation - In fixed allocation strategy, investors will maintain the allocation ratio of debt and equity even when the market moves.
Fixed Maturity Plan(FMP) - Fixed Maturity Plan or FMP are closed ended schemes that invest in a portfolio of debt sercurities which mature on or before the maturity of the scheme.The yield form the fund wil depend on tenor and credit quality of the securities held in the portfolio. FMPs come with tenors ranging from 90 days to 3 yeras and some even longer.
Flexible Asset Allocation - In flexible asset allocation, investors or fund managers don't re-balance their debt-equity mix. This is one type of tactical approach to investment. It can help to benefit from swings in the returns in different instruments.
Floating Rate Bond - Floating rate bonds (FRBs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or Central Bank funds rate, plus a quoted spread (i.e., quoted margin). The spread is a rate that remains constant. Almost all FRBs have quarterly coupons .
The best time to buy a floating rate bond is when rates are low, or have fallen quickly in a short period, and are expected to rise. Conversely, plain-vanilla bonds are more attractive when prevailing rates are high and expected to fall. Floating rate bonds are also an attractive option for investors whose primary concern is maintain a portfolio return that keeps up with the rate of inflation.
Fund of Funds - This type of mutual funds invest in other mutual funds. A fund of funds either invests in other mutual funds belonging to the same fund house or to other fund houses. The NAV of a FoF can be computed only after the NAV of the underlying funds is computed and declared.
Future - A legally enforceable. exchange traded , standardized contract that represents an agreement to buy or sell a quantity of asset at a predetermined delivery date.
Future Value - Future value is amount that is obtained by enhancing the value of a present payment or a series of payments at the given rate of interest to reflect the time value of money.
Geometric Mean - Geometric Mean indicates the central tendency or typical value of a set of numbers by using the product of their values. It reflects the compound rate of growth over time. The geometric mean is always less than the arithmetic mean.
GDP - Gross Domestic Product or GDP is a measure of the total production of final goods and services in the economy during a specified period usually a year. The growth rate of GDP is the most improtant indicator of the performance of the economy.
G-Sec - G-Sec or Government Securities are issued by the RBI on behalf of the government. RBI is the nodal regulatory authority for primary and secondary markets in government securities. Bak, Insurance companies, mutual funds, and members of the Negotiated Dealing System(NDS) are eligible to participate in an auction for G-Secs. 5% of the issuance amouknt is reserved for non-competitive bidders such as trusts and individual investors. G-Sec is the most liquid segment of the long term debt market. G-Sec can be traded in the secondary market in multiple ways, Market participants can buy and sell G-Sec in the Over-the Counter(OTC) market, the Negotiated Dealing System(NDS) of the RBI or in the wholesale and retail debt market segments of the BSE and NSE.
Gilt Fund - Government bonds are called gilts or treasury bonds. Gilt scheme invest in government securities.
Growth Fund - Fund Mangeers of this type of funds focus on stocks which have higher earnings growth. Growth funds generally out-performed during the bull market and under-performed during bear market.
Hedging - Purchase or sale of derivative contracts to offset possible changes in the value of assets or liabilities, currently held or expected to be held at some future date.
Hybrid Fund - This type of mutual funds invest in a combination of debt and equity in varying proportions.
Income Fund - Income Fund is a debt fund that invests in both short and long term debt securities of the government, public sector and private sector companies.
IIP - The Index of Industrial Production (IIP) is an abstract number or ratio which measures the growth of various sectors in the economy. In India, IIP is a representative figure which measures the general level of Industrial activity in the country. IIP is released Monthly and this is partially due to the fact that the Annual Survey of Industries are released annually and a short term index is required for assessment of short term activities. The IIP is released by Central Statistical Organization.
Index Fund - Investment portfolio that aims at replicating the performance of a chosen market index.
Inflation Risk - Inflation risk or purchasing power risk arises from the decline in value of security's cash flows due to falling purchasing power of monty. Inflation risk is highest in fixed income instruments.
Infrastructure Bond - The money generated through these bonds is used to create important infrastructures like roads, ports, airports, and power plants.As per laws, interest earned from these bonds will be subjected to taxes just like the fixed deposits that offer tax benefits. This means that their actual return varies from anywhere between 5 and 8 percent.This means it is slightly less advantageous than other investment options such as PPFs, NSCs, and fixed deposits in that regard. The fact that infra bond investors are not secured against inflation accounts for the variable returns as well.
Interest Rate Risk - Interest rate risk to the bond prices will fall in response to rising interest rates and will rise in response to declining interest rates.
Life Cycle - Life cycle is various stages of life which people go through in life.
Liquid Asset - Assets which can be easily converted into money at short notice are known as Liquid Asset.
Money Market Fund - Money Market Fund or Liquid Funds are very short term maturity. This type of funds invest in a debt securities with less than 91 days to maturity.
Narrow Money(M1) - Excludes cash with banks and deposits with RBI from reserve money and includes demand deposits.
Networth - Networth is the difference between Total Assets minu Total Liabilities. It determines financial position of a investor at given point of time.
Option - An option is a right given by the option writer/seller to the option buyer/holder to buy or sell an underlying asset at a predetermined price within or at the end of a specified period.
Portfolio Management Services(PMS) - Financial intermediaries offers PMS to the investors particularly High Net Worth investors. PMS providers maintain a separate portfolio for each investor. PMS provider can charge a percentage on the assets under management, the investor may also have to share a part of the gains on the PMS portfolio. The losses are entirely brone by the investor. PMS are regulated by SEBI,under SEBI(Portfolio Managers) Regulations, 1993.
Portfolio Return - Portfolio Return is the weghted average return of all assets included in it,the weights being the proportionate investment in each asset.
Portfolio Risk - Portfolio Risk is the combination of risk of each investment and its weight in the portfolio. It also depend on the correlation between the asset classes included in the portfolio..
Present Value - When a future payment or series of payments are discounted at the given rate of interest up to the present date to reflect the time value of money, the resulting value is called present value.
Price to Book Value - It is the ratio between a stock's price per share to its book value. It indicates how much shareholder are paying for the net assets of a company.
RBI Relief Bond - RBI relief Bonds are issued in the form of Bond Ledger Account or in the form of Promissory Notes. Some features are :-
1. The minimum amount of investment is Rs.1,000.00 ; 2. Interest comopunded half-yearly.; 3.Bond holder can receive interest either half-yearly or at maturity. ; 4. Maturity period is 5 years. ; 5. Interest earned is tax free. ; 6. The bonds are transferable ; 7. Nomination facility is available; 8. The bonds can be offered as security to banks for availing loans.
Real Return - The real rate of return is the return on an investment after adjusting for inflation.
Repo Rate - The rate at which the RBI lends money to commercial banks is called repo rate. Whenever banks have any shortage of funds they can borrow from the RBI.
Reserve Money(Mo) - Currency in circulation + Deposit with RBI is called Reserve Money. It refers to the base money in cash and near cash.
Reverse Repo Rate - Reverse Repo rate is the rate at which the RBI borrows money from commercial banks.
Risk Free Rate - Risk-free rate of return is an imaginary rate that investors could expect to receive from an investment with no risk. Investment world considers government bonds as risk-free investments because the probability of a country going bankrupt is low.
Risk Profiling - It is the process that determines the level of risk that an investor is ready to take. Financial risk tolerance depends upon risk capacity and risk attitude.
Risk-Return Trade-off - Higher return is corelated with higher risk and lower return is associated with lower risk. This is called trade-off between risk and return.
Savings Ratio - It is the percentage of annual income that a person is able to save. It can be derived dividing Annual Income by Annual Savings.
Sector Fund - Sector Funds are mutual funds that are established to focus and invest in the stocks of specific sectors of the economy, such as banking,pharmaceuticals, chemicals, or information technology. This is normally specified in the offer document of the funds. Investment in sector funds have to be well timed. If the invested sector perform well then the sector fund will out-perform the market.
Simple Interest - Simple interest is calculated on the original principal only. Accumulated interest from prior periods is not used in calculations for the following periods.
Stagflation - When economic stagnation of country is accompanied by high inflation , it is called stagflation.
Standard Deviation - Standard Deviation is the square root of variance. It is the average deviation of observed returns from the average return over a time period. Higher standard deviation means higher risk and lower standard deviation means lower risk.
Strategic Asset Allocation - This asset allocation strategy builds on the needs and preferences of the individual over the long term. The allocation of each asset class is driven by investor's objectives. Re-balancing of the asset classes is important feature of this strategy.
Systematic Investment Plan(SIP) - Systematic Investment Plan or SIP is the plan of investing at a constant amount regularly, generally every month. It ensures that the acquisition cost approximates the average value of unit price. It is also called rupee cost averaging.
Systematic Transfer Plan(STP) - It is process to re-balance of two scheme of a portfolio of investor. Through a systematic transfer of investment between schemes a targeted mix of debt and equity can be maintained. or any two different risk related scheme. STP is a combination of SIP and SWP.
Systematic Withdrawal Plan(SWP) - Systematic Withdrawal Plan is opposite of Systematic Transfer Plan, the investor would withdraw fixed amount periodically.
Time Value of Money - Time value of money is the concept that the value of a rupee to be received in future is less than the value of a rupee on hand today because it can be 'employed' to earn interest over time.
Tactical Asset Allocation - In tactical asset allocation, investors take asset allocatioin calls based on their market views. They buy in undervalued market and exit from l their holding in overvalued market. This approach is very risky tactic of investment. It is suitable only for seasoned investors.
Thematic Fund - Fund managers in this type of funds, generally invest in the stocks base on the specific theme. Fund managers are confident that the theme will do well in the near term. Like, infrasturcture, commodity, power etc.
Wealth Cycle - Like life cycle stages, investment cycle or wealth cycle also has various stages which are accumulation, distribution, transition and Inter-generatioin transfer. Some investor may come with windfall gains in their wealth cycle.
Value Fund - In this type of funds, fund managers try to identify underpriced stocks which has the potential to perform well in the long term.
Wholesale Price Index(WPI) - The wholesale price index (WPI) is based on the wholesale price of a few relevant commodities. The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed.
Windfall Gains - Acquiring sudden wealth lke winning lottery, handsome annual bonus or getting inherited property are fall in the category of windfall gains. Investors should try to set a side major portion of such gains for long term investment and may also try to reduce some debt.
Yield - Yield is rate of return of an investment expressed in percentage. It is usually calculated by dividing the amount investor receive annually in dividends or interest of invested amount.
Decline in yields leads to an increase in the value of old bonds and vice versa. A longer tenure debt security will fluctuate more than a shorter tenor.
Yield To Maturity - The rate that equates the present value of the future cash flows of a bond to it's current value is called the Yield to Maturity of a bond.