Finance glossary
Every term that trips people up in the NISM workbooks, explained the way a person would explain it — with a worked Indian example, the mistakes that cost marks, and where it turns up in the syllabus.
347 fully explained · 3,690 brief definitions
Alternative investments
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- Alternative Investment FundA privately pooled investment vehicle registered with SEBI that raises money from select Indian or foreign investors under a defined investment policy — never from the public at large.
- Angel FundA sub-category of Category I AIF, registered with SEBI specifically as an angel fund, which raises money from angel investors and invests it in start-ups deal by deal rather than through schemes.
- Angel InvestorAn accredited investor, or key management personnel of an angel fund or its manager, who puts capital into start-ups and early-stage ventures through an angel fund.
- Catch-up RateThe rate at which residual profits go to the manager after investors have received their capital and preferred return, until the manager holds its agreed share of total profits.
- Category I AIFThe AIF category for funds the government or a regulator treats as socially or economically desirable — venture capital, angel, SME, social impact, infrastructure, special situation and CDMDF funds.
- Category II AIFThe residual AIF category: anything that is neither Category I nor Category III and takes no fund-level leverage beyond a narrow temporary carve-out — private equity, private debt and fund-of-funds.
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- ClawbackAn investor right to recover carried interest already paid to the manager on early successful exits, when later failed investments mean the manager was overpaid across the fund's whole life.
- Co-investmentInvestment by a manager, sponsor or investor of a Category I or II AIF directly into an investee company that the AIF is itself investing in, alongside the fund rather than through it.
- First CloseThe date an AIF scheme declares it has raised enough commitments to proceed — the point from which tenure, management fees and set-up cost amortisation all start running.
- Fund of fundsAn AIF that invests in the units of other AIFs rather than directly in investee companies — buying diversification across managers and strategies, and paying two layers of fees for it.
- Gross Net Asset ValueThe value of a Category III AIF's assets before incentive fees are deducted — and the base on which management fees are charged, which is why it is not the same as the NAV investors see.
- Hurdle rateThe minimum return that must accrue to investors before the manager earns any incentive fee — the threshold that turns a fund's profit into the manager's profit.
- Infrastructure FundA Category I AIF investing primarily in the unlisted securities, partnership interest or listed and securitised debt of companies and SPVs that operate, develop or hold infrastructure projects.
- Investment Management AgreementThe agreement between the trustee, acting for the AIF, and the investment manager, by which the trustee delegates its entire investment management power — and by which the manager can later be removed.
- Management BuyoutA leveraged buyout in which the company's own management team borrows to buy a majority stake from existing shareholders and takes control of the business it already runs.
- Management FeeThe fixed annual fee an AIF pays its investment manager for managing the fund — charged on committed capital in Category I and II funds and on gross NAV in Category III, regardless of performance.
- Mezzanine CapitalCapital provided in a hybrid structure carrying features of both debt and equity — typically subordinated debt with an equity upside attached, such as warrants.
- Private EquityEquity capital raised by companies from external investors without going to the public markets — direct investment in businesses that are not listed on a stock exchange.
- Real Estate Investment TrustA SEBI-registered trust that pools investors' money into commercial real estate and lists its units on a stock exchange, so rent-yielding property can be bought in small lots and sold in a day.
- Right of First RefusalA shareholder right to match the best outside quote a selling shareholder has obtained — the holder sees the price first and may buy at it, or refuse and let the sale proceed.
- SettlorThe party who brings an AIF trust into existence — executing the trust deed with the trustee and conveying the initial sum that becomes the trust's first asset.
- Social Impact FundA Category I AIF investing primarily in social ventures and social enterprises, which satisfies the social performance norms laid down by the fund and may both take and give grants.
- Special Situation FundA sub-category of Category I AIF that invests only in special situation assets — stressed loans, security receipts and the securities of defaulting companies — and may act as a resolution applicant under the IBC.
- Venture Capital UndertakingA domestic company that is not listed on a recognised stock exchange at the time the investment is made — the defined target that a venture capital fund must put at least 75% of its investable funds into.
- Venture DebtSpecialised lending to start-ups that have already raised institutional venture equity — unsecured, priced above commercial rates, repaid in two to three years, usually with an equity kicker attached.
AML and KYC
- Central KYC RegistryThe Government's central digital store of KYC records for the whole financial sector, operated by CERSAI, which de-duplicates records and issues each client a unique KYC Identifier.
- Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
- Client Identification ProcedureThe written procedure each registered intermediary must frame and run to establish the true identity of a client — at onboarding, during transactions, and whenever earlier identification data is doubted.
- Clients of Special CategoryA named list of client types — NRIs, HNIs, trusts, NGOs, PEPs, non-face-to-face clients and others — on whom SEBI requires enhanced due diligence rather than the ordinary standard.
- ControlIn the beneficial-ownership tests, the right to appoint a majority of directors or to control management or policy decisions — the limb that catches an owner holding no shares at all.
- Enhanced Due DiligenceThe additional customer due diligence a Regulated Entity must perform where ML/TF risk is high — including source of wealth, Senior Management approval and enhanced ongoing monitoring.
- FATCA and CRSTwo cross-border tax transparency regimes — one American, one OECD — under which a mutual fund's registrar identifies foreign-taxable investors and reports their accounts to the CBDT for automatic exchange.
- FATFThe intergovernmental body founded in 1989 that writes the global AML/CFT standards — the 40 Recommendations plus IX Special Recommendations — and grey-lists or black-lists countries that fail them.
- FIU-INDIndia's central national agency for receiving, processing, analysing and disseminating information on suspect financial transactions, set up in November 2004 and reporting to the Economic Intelligence Council.
- In-person verificationThe mandatory step in which an authorised official physically confirms that the person opening the account is the person in the KYC documents, and records who did it, when, and in what capacity.
- IntegrationThe final stage of money laundering — bringing the funds back out into the legitimate economy as property, business income or dividends that can be spent without attracting attention.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- KYC Registration AgencyA SEBI-created agency that holds an investor's verified KYC record centrally, so that one KYC completed with any securities market intermediary works with all the others.
- LayeringThe second stage of money laundering — moving money through enough transactions, accounts and jurisdictions that the trail back to the original crime becomes impossible to follow.
- Money launderingTurning the proceeds of a crime into money that looks legitimate — classically in three stages, placement, layering and integration — and a standalone offence under section 3 of the PMLA.
- Mule accountAn account held in one person's name but effectively controlled by another — defined in the SEBI PFUTP Regulations and used to place criminal money without exposing whoever actually owns it.
- PlacementThe first stage of money laundering — getting criminal cash into the financial system, where it stops being a bag of notes and becomes a balance that can be moved.
- Politically exposed personsA higher-risk class of client that SEBI treats as a client of special category: the intermediary must detect them, obtain senior management approval to deal with them, and verify their source of funds and wealth.
- Risk Based ApproachApplying each due diligence measure in proportion to the money-laundering risk a client poses — enhanced diligence for higher-risk clients, simplified for lower-risk, never simplified where suspicion exists.
- Scheduled offenceAn offence listed in Part A, Part B or Part C of the Schedule to the PMLA — the crime that must have been committed before there can be proceeds of crime, and so before money laundering exists.
- Specified transactionThe class of transactions under section 12AA of the PMLA that a reporting entity may not begin until it has completed enhanced due diligence on the client undertaking them.
- Suspicious Transaction ReportA report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
- Video In-Person VerificationIPV conducted over a live, recorded video interaction through the intermediary's own app — with informed consent, random questions, a liveliness check and a tamper-proof time-stamped recording.
Clearing and settlement
- Central counterpartyThe clearing corporation that interposes itself in every exchange trade, becoming buyer to every seller and seller to every buyer, so neither side carries the other's credit risk.
- Clearing corporationThe entity that steps between every buyer and seller in the derivatives segment by novation, becoming the counterparty to both sides and guaranteeing that the trade settles.
- Conversion factorThe multiplier that scales a futures settlement price into a fair invoice price for each bond in the deliverable basket, by valuing that bond at the notional 7% yield.
- Daily Settlement PriceThe price at which every open futures position is marked and reset at the end of each day — the last 30 minutes' volume weighted average price of that contract, computed separately for each expiry.
- Delivery Instruction SlipThe signed form on which a beneficial owner instructs the DP to debit the demat account — no beneficiary account can be debited without one, whether the transfer is on-market or off-market.
- Extreme Loss MarginA flat 3.5 per cent margin collected on cash-market positions to cover losses falling outside what the VaR margin is designed to capture.
- Final Settlement PriceThe price at which a commodity derivative is finally settled at expiry — a simple average of the polled spot prices of the expiry day and the two days before it.
- Initial marginThe deposit both the buyer and the seller of a futures contract must place before the position is accepted, sized to cover a 99% worst-case one-day loss on that position.
- InteroperabilityA clearing member choosing one clearing corporation to clear and settle everything it trades, across all exchanges, instead of being tied to a separate clearing corporation per exchange.
- NovationThe clearing corporation stepping into the middle of every trade — becoming the buyer to every seller and the seller to every buyer — so that neither side carries the other's default risk.
- Professional Clearing MemberA clearing member — typically a bank or custodian — who clears and settles trades for other trading members and institutional clients but is not itself a trading member of the exchange.
- Standing instructionA one-time authority, usually given at account opening, for the DP to credit securities into the account without a fresh instruction each time — the alternative is a Receipt Instruction for every single receipt.
Commodities
- BackwardationA market in which the futures price sits below the spot price — the cost of carry says futures should be dearer, and something is overriding it.
- ContangoA market in which the futures price sits above the spot price, normally because the futures buyer is paying for the cost of carrying the commodity through to delivery.
- Convenience yieldThe rupee benefit of physically holding a commodity rather than holding a futures contract on it — the term that lets a futures price fall below spot plus carry.
- Warehouse receiptA document of title issued by an exchange-accredited warehouse to whoever deposited goods in it, transferable by endorsement and deliverable against a short futures position.
Compliance and audit
- Compliance OfficerThe separately appointed officer of a merchant banker, listed company or intermediary who monitors compliance with securities law, handles investor grievances, and reports non-compliance to SEBI independently.
- Compliance Test ReportThe annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
- Contra trade restrictionThe cooling period of not less than six months — two months for mutual fund units — during which a designated person who has been permitted to trade may not take the opposite side of that trade.
- Designated DirectorThe person a reporting entity designates to ensure overall compliance with Chapter IV of the PMLA — and, where the entity is located in an IFSC, the person heading that entity in India.
- Designated personsThe people a listed company, intermediary or fiduciary formally names as subject to its insider trading code of conduct, chosen by the access their role gives to price sensitive information.
- Fit and proper person criteriaThe continuing character and capability test for a SEBI intermediary, its key people and its 20%-plus owners — eleven disqualifications, any one of which is enough to fail it.
- Key Management PersonnelThe key investment team of an AIF's manager, the employees who decide on behalf of the fund, and anyone else the AIF or manager declares as such — named in the PPM and bound by the Code of Conduct.
- Liquid Net WorthThe part of a merchant banker's net worth deployed in unencumbered liquid assets, counted after a prescribed haircut on each asset type — a second capital test that net worth alone cannot satisfy.
- Obligations of trusteesThe duties SEBI places on a mutual fund's trustees: hold scheme property in trust, review every AMC-associate transaction quarterly, and certify to SEBI half-yearly that nothing improper happened.
- Regulated EntityIFSCA's term for a unit that holds its licence, recognition, registration or authorisation — the entity the IFSCA (AML, CFT and KYC) Guidelines, 2022 place their duties on.
- Reporting entityUnder Section 2(1)(wa) of the PMLA, a banking company, financial institution, intermediary or person carrying on a designated business or profession — the entity that must keep records and report to FIU-IND.
- Restricted listThe confidential list of securities an intermediary's compliance officer maintains, used as the basis for approving or rejecting applications for pre-clearance of trades by designated persons.
- Retention periodsHow long AML records must be kept: five years from the transaction for transaction records, and five years after the relationship ends or the account is closed, whichever is later, for identity records.
- Trading windowA notional window used to monitor trading by designated persons — closed by the compliance officer whenever they can reasonably be expected to possess unpublished price sensitive information.
Corporate actions
- BuybackA company purchasing its own shares out of reserves and extinguishing them, reducing share capital and raising earnings per share for the shareholders who remain.
- Corporate actionAn event initiated by a company that changes the securities it has issued — dividend, buyback, bonus, split, consolidation, rights issue or merger — and which the registrar has to execute investor by investor.
- Escrow accountThe security an acquirer must deposit before a takeover open offer — 25% of the first Rs 500 crore of consideration plus 10% of the balance — so that the money to pay tendering shareholders is ring-fenced.
- Record dateThe date on which a company looks at its register and decides who gets the bonus, dividend, rights or split — you must be holding the shares in your demat account at the end of that day.
- Reverse book buildingThe bidding process by which the exit price in a voluntary delisting is discovered from public shareholders above a fixed floor price, instead of being set by the acquirer.
Currency and forex
Depository and custody
- Basic Services Demat AccountA low-cost demat account for a small investor who holds only one demat account and whose holdings stay within Rs 2 lakh of debt and Rs 2 lakh of non-debt securities — its annual charge can be nil.
- Beneficial ownerThe investor who owns dematerialised securities for every practical purpose — the depository is the registered owner on the company's books, but the dividends, bonus, rights and votes are the investor's.
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- DematerialisationConverting securities held as physical certificates into book-entry holdings: the certificates are defaced, mutilated and surrendered to the issuer, and an equivalent quantity is credited to the holder's demat account.
- DepositoryAn institution that holds investors' securities in electronic form and provides the services needed to transact in them — the securities equivalent of a bank holding money rather than cash.
- Depository participantThe SEBI-registered agent through whom an investor reaches a depository — NSDL and CDSL cannot open investor accounts themselves, so every demat account is opened and operated through a DP.
- FungibilityIn the depository, securities of the same class carry no distinctive or certificate numbers — every unit is identical to every other and interchangeable, so title is counted in numbers, not in serial numbers.
- HypothecationA charge over demat securities where the lender needs the borrower's concurrence to appropriate them — the same book entries as a pledge, with one extra confirmation, and a term used only in NSDL.
- ISINThe 12-character code (ISO 6166) that identifies one specific security in the depository system — country prefix, nine-character basic number and a check digit, as in INE475C01012.
- PledgeA charge created over demat securities in favour of a lender who may appropriate them unilaterally on default — created by book entry under section 12 of the Depositories Act, not by handing over anything.
- RematerialisationThe reverse of dematerialisation — the demat account is debited and the issuer prints fresh physical certificates for the same quantity, to be despatched within 30 days.
- Vault ManagerThe SEBI-registered intermediary that stores and safekeeps gold deposited for trading in Electronic Gold Receipts, and coordinates their creation, transfer and extinguishment with the depository.
Derivatives
- Base priceThe reference price a contract starts each trading day from — the theoretical futures price on the day it is introduced, and the previous day's daily settlement price on every day after.
- BasisThe difference between the spot price and the futures price of an asset — positive when spot exceeds futures, negative when futures exceeds spot, and zero at expiry.
- Break-even pointThe level of the underlying at which a position makes neither profit nor loss — for a bought call, strike plus premium; for a bought put, strike minus premium.
- Call optionA contract giving its buyer the right, but never the obligation, to buy the underlying at a fixed strike price — so the loss is capped at the premium and the gain is not.
- Corporate Bond Index FuturesCash-settled futures on an index of corporate debt rated AA+ and above, permitted by SEBI in January 2023 to give the corporate bond market a hedge of its own.
- Credit Default SwapA contract in which a protection buyer pays a regular premium to a protection seller, who agrees to pay any loss in value on a specified reference obligation if a credit event such as default occurs.
- DeltaThe change in an option's premium for a one-rupee change in the underlying — the first and most used Greek, and the hedge ratio that says how much underlying to hold against an option position.
- DerivativeA contract whose value is derived from the value of something else — the underlying — rather than from anything the contract itself owns or produces.
- Diagonal spreadTwo options of the same type on the same underlying with both a different strike and a different expiry — the most complicated of the three spread families, and the only one that varies on both axes.
- Fair valueThe theoretical futures price — spot plus the cost of carrying the commodity to expiry — at which a buyer is indifferent between buying today and buying forward.
- Forward contractA bilateral, over-the-counter agreement between two parties to buy or sell an asset on a fixed future date at a price agreed today — customised to suit them, and binding on both.
- Futures contractA standardised forward traded on an exchange, where the exchange fixes every term except the price and the clearing corporation guarantees settlement, so neither side carries the other's default risk.
- GammaThe rate at which an option's delta changes for a one-unit change in the underlying — the second-order Greek, and the reason a delta hedge stops working as soon as the market moves.
- HedgerA participant who already carries interest rate risk from a real business exposure and uses derivatives to remove it, rather than to take a view on the market.
- HedgingTaking a derivative position that moves opposite to an exposure you already have, so gains on one offset losses on the other and the future rate is locked in at a known level.
- Horizontal spreadTwo options of the same type and the same strike but different expiries — a position whose entire value is the difference between the two legs' time values, not a view on direction.
- Implied volatilityThe volatility figure that, put into an option pricing model, reproduces the option's actual market price — the market's consensus forecast of how much the underlying will move.
- Interest Rate FuturesA standardised exchange-traded contract to buy or sell a notional government security, or an interest rate itself, at a price agreed today for settlement on a future date.
- LeverageControl of a large contract value for a small upfront outlay — premium for an option buyer, margin for a futures position — which multiplies percentage gains and percentage losses by the same factor.
- Mark to MarketThe daily settlement of a futures position at that day's closing price, so gains and losses are paid in cash every evening instead of accumulating until expiry.
- MoneynessWhether exercising an option right now would give the buyer a positive, zero or negative cash flow — classifying it as in the money, at the money or out of the money.
- Open interestThe total number of derivative contracts outstanding and not yet settled in an underlying — counted on one side only, because every long is matched by a short.
- OptionA contract giving the buyer the right, but not the obligation, to buy or sell the underlying at a stated price on or before a stated date, in exchange for a premium paid to the writer.
- Option premiumThe price an option buyer pays the seller for the right the contract carries — non-refundable, and made up of intrinsic value plus time value.
- Price discoveryThe process by which the free interaction of buyers and sellers produces a price that reflects every participant's expectation of what the underlying will be worth at a future date.
- Put optionA contract giving its buyer the right, but never the obligation, to sell the underlying at a fixed strike price — insurance against a fall, bought for a premium.
- Risk transferThe economic function by which commodity price risk moves off the hedger, who does not want it, onto the speculator, who is willing to carry it for a return.
- Strike priceThe price fixed in an option contract at which the buyer may buy (call) or sell (put) the underlying if he chooses to exercise — fixed for the life of the contract, unlike the premium.
- Tick sizeThe smallest price change a contract may be quoted in — prices move only in whole multiples of it, and it differs from one commodity to another.
- Tick valueThe rupee profit or loss on one contract when the price moves by a single tick — lot size divided by the quotation factor, multiplied by the tick size.
- Wasting assetAn option, whose time value shrinks towards zero every day it is held and is worth nothing at expiry — so an option buyer loses money simply from the passage of time.
Economics
- Demand-pull inflationInflation caused by demand running ahead of the supply available to meet it — too much money chasing too few goods.
- Gross Domestic ProductThe market value of all final goods and services produced inside a country's borders in a period, whoever owns the producer — the standard measure of the size and growth of an economy.
- InflationA sustained general rise in the price level, which erodes what a rupee buys — and the reason a nominal return has to be deflated before it means anything.
Financial planning
- Asset allocationThe decision on how to distribute a client's wealth across asset classes — the first decision in building a portfolio, and the one that explains most of what the portfolio then does.
- Credit scoreThe number a credit information company builds from your loan and credit-card repayment history, and the first thing a lender looks at when your application arrives.
- Debt to income ratioMonthly debt servicing commitment divided by monthly income — the ratio that says whether a household's income can carry the loans it already has, let alone another one.
- Debt trapThe state a borrower reaches once debt is being used to meet ordinary living expenses, so fresh borrowing becomes necessary to service the borrowing already outstanding.
- Estate planningDeciding during your lifetime who is to receive which of your assets after your death, and documenting it — mainly through a Will and nominations — so heirs can claim them easily and cheaply.
- Financial planningThe process of estimating what a person will need money for across their lifetime and building an investment plan to meet each of those needs — savings with a purpose attached.
- Future valueWhat a sum of money invested today will be worth at a future date once returns have been earned and reinvested — the compounding half of the time value of money.
- Irrevocable trustA trust whose settlor cannot take the property back, which is why the workbook records that it is protected from the settlor's bankruptcy and usable to secure the interests of dependents.
- Net worthEverything you own minus everything you owe — the one number that says where a household actually stands, and the starting point of any financial plan.
- Risk profilingEstablishing how much risk an investor should carry by weighing three separate things — the need to take risk, the financial ability to take it, and the psychological willingness to bear it.
- Succession certificateA certificate issued by a District Court under the Indian Succession Act, 1925 authorising the legal heirs of someone who died without a Will to collect the deceased's debts and securities.
- Time value of moneyThe principle that the same sum of money is worth different amounts at different points on a timeline, because money held today can be invested and because inflation erodes what it will buy.
Financial statements
- Authorised capitalThe maximum amount of share capital a company is allowed to issue, fixed in its Memorandum of Association — a ceiling on what can be created, not money the company has.
- Core working capitalInventory plus trade receivables minus trade payables — the money permanently trapped in the operating cycle, stripped of cash and borrowings, which have nothing to do with trading.
- Diluted EPSEarnings per share recalculated as if every instrument that can convert into equity had already converted — the pessimistic, and usually the more honest, share count.
- EBITDAProfit from running the business, measured before interest, tax, depreciation and amortisation — so before how the company is funded and how it accounts for its assets.
- Paid-up capitalThe part of the issued capital that shareholders have actually paid for — issued capital less the calls still outstanding on partly paid shares.
Fixed income
- Bond Equivalent YieldThe annualised simple-interest return on a money market instrument, computed on price and a 365-day year, so instruments of different maturities can be compared on one basis.
- Call moneyUncollateralised overnight lending and borrowing of funds between scheduled commercial banks and primary dealers — the shortest segment of the Indian money market.
- Convertible debenturesDebentures that turn into equity shares on terms fixed at issue — the investor draws a coupon until conversion, and the company settles the debt in shares instead of cash.
- ConvexityThe curvature of the price-yield relationship — the correction duration misses, because duration is a straight line and the true relationship bends.
- Corporate Debt Market Development FundA close-ended Category I AIF, formed as a trust with a 15-year tenure, that buys investment-grade corporate bonds from debt mutual fund schemes when SEBI declares a market dislocation.
- Coupon rateThe rate of interest a bond pays, applied to its face value and never to its market price — which is why the coupon tells you the cash flow but not the return.
- Credit ratingAn opinion on how likely a borrower is to service an instrument on time, reduced to a symbol by a SEBI-registered rating agency — and reviewed continuously, not fixed for the life of the bond.
- Current yieldA bond's annual coupon in rupees divided by its current market price — the cash income the bond throws off this year, ignoring any gain or loss at redemption.
- Debenture trusteeThe SEBI-registered trustee of the trust deed securing an issue of debentures — the debenture holders' agent, standing between them and the issuer for the life of the paper.
- Fixed Maturity PlanA close-ended debt scheme whose portfolio maturity is aligned to the scheme's own maturity date, so the investor who stays to the end has a reasonably visible outcome — though never a guaranteed one.
- Government SecurityA tradeable debt instrument issued by the Central Government or a State Government — treated as free of default risk, and the benchmark against which other rupee interest rates are priced.
- Leveraged LoansSub-ordinate debt lent to a company that already carries a large amount of senior debt on its balance sheet, priced for the extra risk of ranking behind the existing lenders.
- Macaulay durationThe weighted average time, in years, to receive a bond's cash flows, each weighted by the present value of that cash flow — the bond's effective payback period.
- Market Linked DebentureA debenture whose return is linked to an underlying index or security rather than being a fixed coupon; since Section 50AA its gains are short-term capital gains taxed at slab, whatever the holding period.
- Price Value of a Basis PointThe rupee change in a bond's price for a one basis point change in its yield — the unit in which a fixed income desk actually measures and hedges interest rate risk.
- Securitised Debt InstrumentA tradable security created by pooling loans or other receivables in a special purpose vehicle and repackaging the cash flows into instruments that pay a pre-determined periodic income.
- Yield to MaturityThe single discount rate at which a bond's future coupons and redemption amount add up to exactly its market price today — the return you actually earn if you hold it to maturity.
Industry analysis
- Barriers to entryWhatever makes it hard, slow or expensive for a new competitor to enter an industry — and therefore what allows the companies already in it to keep earning above-normal profits.
- Porter's Five ForcesMichael Porter's framework for judging how much profit an industry can sustain, through five competitive pressures: rivalry, new entrants, substitutes, and the bargaining power of suppliers and of buyers.
Insurance
- Endowment policyA life insurance policy that pays the sum assured plus accrued bonus on survival to the end of the term as well as on death — an investment-cum-insurance contract with a level premium.
- Term insuranceLife cover for a fixed period: if you die during the term your nominee receives the sum assured, and if you survive it nothing is paid back. It is the cheapest way to buy protection.
- Unit Linked Insurance PlanA life insurance policy in which the premium, after the cost of risk cover and expenses, is invested in equity or debt funds chosen by the policyholder, so the maturity value is the fund value.
Investor protection
- Action Taken ReportThe reply an entity must upload on SCORES saying what it did about an investor complaint — it is routed straight to the complainant and starts the clock on their right to ask for a review.
- Investor CharterSEBI's published statement of what an investor is entitled to from an intermediary — the services, the rights, the dos and don'ts, and a table of activities with the timeline each one must be completed in.
- Investor Education and Protection FundThe government fund that takes in dividends, deposits and shares left unclaimed for seven years, spends the income on investor education, and refunds the rightful owner whenever they finally claim.
- Investor Protection FundA trust-administered fund at every stock exchange and depository that compensates clients of a trading member who has been declared a defaulter or expelled, up to a per-investor limit the exchange fixes.
- NominationThe account holder's written direction naming who receives the securities on death — up to ten nominees for a demat account, with percentages that must total 100, mandatory for single holdings.
- NomineeThe person you name to receive custody of your money or securities when you die — a custodian who must pass the asset to the legal heirs, not the owner of it.
- Power of AttorneyA legal document by which you authorise somebody else — often your stock broker or depository participant — to operate your demat and bank account on your behalf. It is optional, and revocable.
- SCORESSEBI's centralised web-based system for processing investor complaints, on which the company or intermediary must upload an Action Taken Report and the investor can watch the status online.
- SCORES 2.0The version of SEBI's online complaint redress system launched on 1 April 2024, which auto-routes complaints, gives the entity 21 calendar days to file an Action Taken Report, and auto-escalates when it does not.
- SuitabilityThe investment adviser's obligation under Regulation 17 to ensure that every piece of advice fits the client's documented risk profile, investment objectives and capacity to absorb loss.
Markets and instruments
- ADR, GDR and IDRDepository receipts represent shares of a company in one country but trade on an exchange in another — American inside the US, Global outside it, Indian for foreign shares listed here.
- Capital appreciationThe gain made when the market value of an investment rises above what you paid for it — as distinct from income, which is the interest or dividend the investment pays you along the way.
- Face valueThe denomination a company's capital is divided into and carried in its books — fixed, printed on the certificate, and the base on which dividend percentages and stock splits are computed.
- Impact costThe percentage by which a market order's actual execution price degrades against the ideal price — the mid-point of the best bid and the best offer — and so the real cost of trading in size.
- InvestmentThe current commitment of savings for a defined period, in the expectation of receiving back more than was committed — savings put to work, as distinct from savings merely held.
- LiquidityThe degree of ease with which you can turn an investment back into cash at a fair value — one of the three pillars of investing, alongside safety and return.
- Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
- Secondary marketThe market where securities already issued are traded between investors — the money goes to the selling investor, not to the company, and the issuer's capital is unchanged.
- SpeculationTaking on risk not commensurate with the return sought, in the hope of a large gain, with minimal research into what the asset is actually worth — the opposite of investing, and not merely the short-term version of it.
Mutual funds
- Asset Management CompanyThe company that runs a mutual fund's schemes day to day — appointed by the sponsor or trustees with SEBI's approval, and paid a fee out of the scheme rather than a share of its profits.
- Assets under ManagementThe total value of the money a scheme or a fund house manages — the current NAV multiplied by units outstanding — and the base on which the expense ratio is charged.
- Base Expense RatioThe management-and-administration slice of a scheme's cost, capped by the SEBI slabs — the first and largest of the four components that add up to Total Expense Ratio.
- Change in control of the AMCWhen ownership of a mutual fund's AMC changes hands, SEBI and the trustees must approve it first and every unit holder must be offered at least 30 calendar days to exit at NAV with no exit load.
- Exchange Traded FundA mutual fund scheme whose units are listed and traded on a stock exchange like a share, so you transact at live prices through the day instead of at one end-of-day NAV.
- Exit loadA charge levied when an investor redeems units, calculated as a percentage of NAV and deducted from it, usually only if the units are sold within a stated holding period.
- IDCWThe renamed dividend option of a mutual fund scheme — a payout that is part income and part return of your own capital, which is why the NAV falls by exactly the amount distributed.
- Infrastructure debt fund schemesA mutual fund scheme that must put at least 90% of its assets into the debt of infrastructure companies, projects and SPVs, with a 30% cap on any single infrastructure borrower.
- Instant Access FacilityA facility that credits redemption proceeds to a resident individual investor's bank account on the same day, offered only in overnight and liquid schemes and only through the AMC's own website or app.
- Key Information MemorandumThe short summary of the SID and SAI that SEBI requires to accompany every mutual fund application form — the one scheme document an investor is guaranteed to be handed.
- Mutual fundA trust registered with SEBI that pools money from many investors and invests it in securities on their behalf — not a different product from shares and bonds, but a different way of owning them.
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- New Fund OfferThe period in which a mutual fund scheme's units are offered to the public for the first time, at a fixed NFO price rather than at NAV, and during which the registrar builds the scheme's first register of investors.
- Norms for shareholding in mutual fundsA rule that stops one fund house owning a piece of another: no sponsor, associate or 10% shareholder of one AMC or trustee company may hold 10% or more of, or sit on the board of, another mutual fund's.
- Official Point of AcceptanceA location a mutual fund has formally designated to receive transaction requests, where the application is time-stamped — and that stamp, not the moment the investor handed the form over, decides which NAV applies.
- Real estate mutual fund schemesA mutual fund scheme holding actual property: at least 35% of net assets directly in completed, unencumbered Indian real estate, and at least 75% in real estate assets and related securities.
- Segregated portfolioA ring-fenced sub-portfolio holding the debt instrument hit by a credit event, split out of a scheme so that the good assets stay liquid and exiting investors cannot leave the damaged paper behind.
- Specialized Investment FundA mutual fund product line introduced by SEBI in 2024 for sophisticated strategies, with a minimum investment of Rs 10 lakh across all of an AMC's strategies — sitting between mutual funds and PMS.
- Specialized Investment FundsA SEBI vehicle sitting between mutual funds and PMS: run by an eligible AMC under the Mutual Funds Regulations, with a minimum of Rs 10 lakh per investor across all of that AMC's SIF strategies.
- SponsorThe person or firm that sets up the mutual fund — applies to SEBI for registration, executes the trust deed in favour of the trustees, and puts up the capital of the AMC.
- Systematic Investment PlanA facility to invest a constant amount into a scheme at regular intervals, which buys more units when the NAV is low and fewer when it is high and so averages the cost of acquisition down.
- Systematic Transfer PlanA standing instruction to move a fixed amount from one scheme into another of the same mutual fund at a set frequency — a withdrawal plan out of the source and a SIP into the target.
- Systematic Withdrawal PlanA standing instruction to redeem a set amount — or only the appreciation — from a mutual fund scheme at a chosen frequency, used to manufacture a regular income in retirement.
- Total Expense RatioThe all-in annual cost of a mutual fund scheme as a percentage of daily net assets — the base expense ratio plus brokerage, transaction cost and statutory levies — charged to the scheme, not billed to the investor.
- Tracking errorThe gap between the return of a passive fund and the return of the index it is trying to replicate — the measure of how faithfully an index fund or ETF does its one job.
- UnitThe share of a mutual fund scheme that an investor's money is translated into — typically carrying a face value of Rs 10, and worth whatever the scheme's NAV is on the day.
- Unit capitalThe number of units a mutual fund scheme has issued multiplied by their face value — an accounting figure that records what investors contributed, not what their holding is worth today.
Operations and risk management
- Algorithmic tradingAny order generated by automated execution logic rather than typed in by a person — software that pushes buy and sell orders into the exchange once its parameters are met.
- Base Minimum CapitalThe deposit every trading member must keep with the exchange purely to meet contingencies — it earns the member no trading exposure at all, and its size depends on what kind of trading the member does.
- Kill switchA pre-trade facility that lets a trading member cancel every one of its outstanding orders with a single command — the emergency brake for a malfunctioning terminal or algorithm.
- Margin pledgeThe only permitted way for a client to give securities as margin — a special pledge created in the depository system that leaves the shares in the client's own demat account instead of transferring them to the broker.
- Price bandThe highest and lowest price at which a contract may trade on a given day, set as a percentage of its base price to block erroneous and manipulative orders.
- SPANThe scenario-based system clearing corporations use to compute initial margin — it revalues a client's whole derivatives portfolio under sixteen what-if scenarios and charges the worst loss.
- Systemic riskThe risk that one participant's default triggers defaults by others until the settlement system itself fails — the domino risk, not the market risk.
- Unique Client CodeThe single code a broker assigns to a client once KYC is complete, mapped to that client's PAN and demat account, under which every one of the client's orders must be entered on the exchange.
Portfolio management
- Catch up clauseThe waterfall step that pays the manager a set share — often 100% — of the profit left after investors receive their capital and hurdle, until the manager reaches its agreed share of total profit.
- Distributions to Paid-in CapitalCumulative cash actually distributed to investors divided by the capital they have paid in — the realisation multiple, and the one return measure a fund cannot flatter with its own valuations.
- High-Water MarkThe highest year-end NAV the fund has ever reached, net of operating, transaction and management costs — the manager earns no incentive fee until the NAV climbs back above it.
- Modern Portfolio TheoryMarkowitz's framework for building portfolios on expected return and risk together, in which the co-movement between holdings — not their individual riskiness — decides the risk of the whole.
- Portfolio Management ServicesA tailored investment service where the client owns the securities directly in their own name, regulated under the SEBI (Portfolio Managers) Regulations, with a minimum investment of Rs 50 lakh.
- Portfolio managerA body corporate registered with SEBI that, under a contract with a client, advises on or manages that client's securities or funds — discretionary, non-discretionary or advisory.
- Strategic asset allocationThe long-term target split of a portfolio across asset categories, fixed from the investor's goals, time horizon and risk profile rather than from any view on markets.
- Tactical asset allocationDeliberately shifting a portfolio away from its strategic target to exploit conditions in particular markets, with the stated aim of improving risk-adjusted return rather than simply chasing return.
Primary markets
- Anchor investorA qualified institutional buyer allotted shares a day before a book-built issue opens — at least Rs 10 crore on the main board or Rs 2 crore on the SME exchange — under a discretionary, locked-in allocation.
- ASBAThe mandatory payment mechanism for public and rights issues, in which your bank blocks the application money in your own account and debits it only if you actually get an allotment.
- Due diligence certificateThe formal certificate a lead manager signs and files with SEBI at prescribed stages of an issue, confirming that it has verified the issuer's disclosures and that the offer document is compliant.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.
- Non-Institutional InvestorThe residual public-issue category for applicants who are neither retail individual investors nor qualified institutional buyers — in practice anyone bidding for more than Rs 2 lakh without being a QIB.
- Preferential issueAn issue of specified securities by a listed issuer to a select person or group on a private placement basis — excluding public, rights, bonus and ESOP issues, QIPs, sweat equity and overseas depository receipts.
- Primary marketThe market where an issuer sells securities to investors for the first time and receives the money itself — the "new issue market", as against the secondary market where investors trade among themselves.
- Qualified Institutions PlacementA fast route by which an already-listed company places eligible securities privately with Qualified Institutional Buyers, without the prospectus and timetable of a public issue.
- Red Herring ProspectusThe offer document used in a book-built public issue, containing every disclosure a prospectus carries except the final price or number of shares, filed with the Registrar before the issue opens.
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
Ratios
- Quick ratioCurrent assets excluding inventory, divided by current liabilities — a stricter liquidity test than the current ratio, because inventory cannot reliably be turned into cash in a hurry.
- Return on Capital EmployedOperating profit as a percentage of all the capital in the business, equity and debt together — the return the enterprise earns before any question of how it was funded or taxed.
- Return on EquityProfit after tax as a percentage of shareholders' net worth — what the company earned on the money its owners have left in it.
Registrar and transfer agency
- Change of addressThe investor service request to update the address on a folio — signed by the first named holder, backed by PAN and a fresh address proof, and confirmed to both the old and the new address.
- Consolidated Account StatementA single statement showing an investor's transactions and holdings across every scheme of every mutual fund in India, linked by PAN and issued monthly where there has been a transaction.
- Cut-off timeThe SEBI-prescribed clock time that, read together with the time stamp on the request, decides which day's NAV a mutual fund transaction is priced at.
- Folio numberThe unique account number a fund house allots to an investor, under which the registrar holds that investor's units across every scheme of the fund, along with the bank mandate, address and signature.
- NIGOA transaction the registrar has flagged as "Not in Good Order" because the application and the money do not reconcile or the paperwork is defective — units are not issued until it is fixed.
- Qualified RTAA registrar servicing more than two crore folios — treated by SEBI as a Critical Infrastructure Institution and held to enhanced monitoring, reporting and business continuity requirements.
- Registrar and Transfer AgentThe SEBI-registered agency that keeps the investor records of a mutual fund — processing purchases and redemptions, updating folios and unit capital, and issuing account statements.
- Third-party chequeA payment for a mutual fund investment drawn from a bank account of which the first holder is not an account holder — not acceptable, and the reason registrars run third-party verification on every subscription.
- Transaction slipThe short form an existing investor uses instead of a full application — it carries the folio number, so the registrar can process a purchase, redemption, switch or profile change without re-keying the investor.
- Tripartite agreementThe agreement signed by the depository, the issuer and the issuer's R&T Agent before that issuer's securities can be admitted for dematerialisation — it is the contract that makes a scrip demat-eligible.
Regulation and ethics
- Adjudicating AuthorityThe quasi-judicial body constituted by the Central Government under Section 6 of the PMLA that issues notices, adjudicates attachments of property and confirms confiscations.
- Authorised personTwo different entities share this name: under SEBI, an agent appointed by a stock broker to give clients access to the trading platform; under FEMA, a dealer authorised by RBI to deal in foreign exchange.
- Chinese WallAn enforced separation inside a firm between departments holding confidential price-sensitive information and those dealing with clients, sales or public research.
- Conflict of interestAny interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
- Connected personA person whose association with a company in the six months before the act put them, or could reasonably be expected to put them, in a position to access unpublished price sensitive information.
- Deemed connected personsCategories of people the insider trading rules treat as connected automatically — relatives, group companies, trustees, bankers, auditors — unless the person proves the contrary.
- Directorate of EnforcementThe multi-disciplinary agency that investigates the offence of money laundering and foreign exchange violations, enforcing the PMLA, FEMA, the Fugitive Economic Offenders Act and sponsoring COFEPOSA cases.
- Fit and proper personThe character and record test in Schedule II of the SEBI (Intermediaries) Regulations, 2008 that an AIF's applicant, sponsor and manager must satisfy for registration and must keep satisfying afterwards.
- Generally available informationInformation accessible to the public on a non-discriminatory basis — the opposite pole of unpublished price sensitive information, and expressly not including unverified media reports.
- IFSCAThe unified regulator of India's International Financial Services Centre, established in April 2020, holding inside the IFSC the powers that RBI, SEBI, IRDAI and PFRDAI hold outside it.
- Immediate relativeA spouse, plus any parent, sibling or child of the person or of the spouse who is either financially dependent on them or consults them on securities trading decisions.
- InformantAn individual who voluntarily files a Voluntary Information Disclosure Form with SEBI about an alleged insider trading violation — protected from retaliation, and an informant whether or not any reward follows.
- InsiderAnyone who is a connected person, or who simply possesses or has access to unpublished price sensitive information — possession alone is enough, with no relationship to the company required.
- International Financial CentreA financial centre that serves customers outside its own jurisdiction — in India, GIFT IFSC, where the AML rules are written for a cross-border, cashless, foreign-currency business.
- Market Infrastructure InstitutionsThe institutions that form the plumbing of the securities market — stock exchanges, depositories and clearing corporations, and under SEBI's cyber framework also KRAs and QRTAs.
- Mis-sellingSelling securities or securities services by knowingly making a false statement, hiding material facts or risk, or not taking reasonable care that the product suits the buyer — an unfair trade practice.
- Persons associated with investment adviceAny member, partner, officer, director, employee or sales staff of an investment adviser who is engaged in providing investment advisory services to the adviser's clients.
- Principal officerThe named individual at a non-individual intermediary who carries personal regulatory responsibility for the advisory business, and who must personally hold the prescribed qualification and NISM certification.
- Private placement memorandumThe offer document of a Category III AIF, filed with SEBI through a merchant banker at least 30 days before a scheme launches — and the document SEBI comments on but never approves.
- Proxy adviserA person who advises institutional investors or shareholders on exercising their rights in a company, including voting recommendations on agenda items and recommendations on public offers.
- Regulatory sandboxA SEBI framework letting registered market participants live-test FinTech innovations with a limited set of customers, for a limited period, under the regulator's supervision.
- Securities Appellate TribunalThe statutory tribunal established under the SEBI Act that hears appeals from orders of SEBI and of its adjudicating officers, which must be filed within 45 days of receipt of the order.
- Stewardship codeSEBI's mandatory code requiring all AIFs and mutual funds to monitor, engage with and vote in the listed companies they invest in — and to publish the policies by which they do it.
- Structured digital databaseThe tamper-evident internal register every handler of unpublished price sensitive information must maintain, recording the nature of the information and the PAN of everyone who shared it and received it.
- Trading plans — regulation 5A pre-announced, irrevocable schedule of trades an insider files with the compliance officer, which may not begin for 120 calendar days and then executes without pre-clearance or trading window limits.
- Unpublished price sensitive informationInformation about a company or its securities that is not generally available and that would, on becoming available, be likely to materially affect the price of the security.
Research practice
- Margin of safetyThe gap between a security's estimated intrinsic value and the lower price paid for it — the cushion that protects the buyer when the estimate turns out to be wrong.
- MoatThe durable competitive advantage that lets a company keep earning high returns while competitors try and fail to take its business.
Retirement and pensions
- Accumulation stageThe working years, in which saving and investment build the retirement corpus — the stage where the ability to take risk is highest and where time, not contribution size, does most of the work.
- Active ChoiceThe NPS investment option under which the subscriber sets the split across the E, C, G and A asset classes personally, subject to a 75 percent cap on equity and 5 percent on alternatives.
- Atal Pension YojanaA government-guaranteed defined-pension scheme for unorganised-sector workers, paying a fixed Rs 1,000 to Rs 5,000 a month from age 60 for contributions started between ages 18 and 40.
- Central Recordkeeping AgencyThe intermediary that holds every NPS subscriber record — it issues the PRAN, unitises contributions at scheme NAV and sits between the subscriber, the pension funds and the trustee bank.
- Distribution stageThe retired years, in which the corpus built during working life is converted into periodic income — the stage where protecting capital matters more than growing it, because it can no longer be topped up.
- Multiple Scheme FrameworkThe PFRDA framework, effective 1 October 2025, that lets non-government NPS subscribers hold branded pension-fund schemes alongside the existing Common Schemes under a single PRAN at each CRA.
- National Pension SystemA PFRDA-regulated, defined-contribution retirement scheme in which the subscriber builds a market-linked corpus and must convert part of it into an annuity at exit; there is no guaranteed return.
- Permanent Retirement Account NumberThe unique account number issued when an NPS account is opened; it stays with the subscriber for life and across employers, which is what makes NPS portable in a way EPF historically was not.
- Public Provident FundA 15-year government-guaranteed savings account for individuals, at a rate reset quarterly, where the contribution, the interest and the maturity value are all outside tax under the old regime.
- Reverse mortgageA loan that pays a senior citizen a periodic income against a pledge of the residential property they live in, repayable from the sale of that property after death or permanent departure.
- Unified Pension SchemeAn option under the NPS for Central Government employees, effective 1 April 2025, that adds an assured payout of 50 percent of the last 12 months' average basic pay after 25 years of qualifying service.
- Voluntary Provident FundAn EPF member's option to contribute more than the mandatory 12% of basic and dearness allowance into the same EPF account, up to 100% of it, with no matching contribution from the employer.
Risk and return
- AlphaThe return a fund earned above what its beta and the benchmark say it should have earned — the slice of performance left over once the market has been given credit for its share.
- Basis riskThe risk left over after hedging, because the exposure and the contract used to hedge it do not move identically — in size, in expiry date, or in what they are written on.
- BenchmarkThe independently published index a scheme's performance is measured against, chosen to match its investment objective, asset allocation and strategy, and disclosed in the Scheme Information Document.
- BetaHow sharply a share moves relative to the market index — beta 1 moves with the index, above 1 amplifies it, below 1 dampens it. The standard measure of systematic risk.
- Business riskThe variability of a firm's income flows caused by the nature of its business — driven by how volatile its sales are and how much of its cost base is fixed.
- CAGRThe single smoothed annual rate at which a starting value would have to grow, compounding each year, to reach the ending value over a given period.
- Credit riskThe risk that a borrower fails to meet its obligations on a debt instrument — the risk credit rating agencies exist to grade, and the one that triggers a segregated portfolio in a mutual fund.
- DiversificationSpreading an exposure across holdings that do not move together, so that total risk falls by more than total return does — minimising risk per unit of return.
- Financial RiskThe extra variability in shareholders' income created by financing assets with debt — because interest is a fixed claim that must be paid ahead of anything reaching the owners.
- Inflation riskThe risk that the money an investment pays out will be worth less in goods and services than expected, because prices have risen — highest in fixed-return products and most damaging to retirees.
- InsuranceThe risk-management approach that pays an explicit upfront premium to remove the downside while keeping the upside — which in derivatives means buying an option rather than selling a future.
- Interest rate riskThe risk that an investor in a debt instrument loses return because rates rise — existing instruments carrying the old, lower coupon fall in value until their yield matches the new market rate.
- Liquidity riskThe risk of being unable to get out of a position at or near the quoted price — because the contract is bilateral, because the order book is thin, or because volumes dry up near expiry.
- Market riskThe risk of loss from movements in market prices — one named category in a manager's risk framework, alongside credit, liquidity and operational risk, and the one measured with VaR and stress tests.
- Real rate of returnThe return on an investment after the effect of inflation has been removed — what the money actually buys more of, as against the nominal percentage the product advertises.
- RiskThe possibility that actual returns turn out different from what was expected — measured as the dispersion of returns around their own average, and not the same thing as uncertainty.
- Risk premiumThe extra return an investor demands over the nominal risk-free rate as compensation for uncertainty about future cash flows — the last and largest block in the required rate of return.
- Sharpe ratioReturn earned above the risk-free rate divided by standard deviation — how much reward an investment produced for each unit of total risk its holder had to live with.
- Standard deviationA measure of how far returns typically stray from their own average — the standard statistic for total risk, counting company-specific and market-wide causes alike.
- Systematic riskThe part of an investment's risk that comes from economy-wide forces moving every asset at once — it cannot be diversified away, and it is the only risk the market pays you to carry.
- Time diversificationReducing the risk of an equity investment by holding it across many time periods rather than across many securities, on the belief that bad periods are cancelled out by good ones.
- Total Return IndexThe variant of a market index that adds the dividends and interest paid by its constituents to their price movement — the only variant a mutual fund scheme may be benchmarked against since 1 February 2018.
- Total Value to Paid-in CapitalA fund's investment multiple: cumulative distributions plus the residual value of unsold investments, divided by paid-in capital — equivalently, DPI plus RVPI.
- Treynor ratioRisk premium per unit of market risk — the return a scheme earned above the risk-free rate, divided by its beta rather than by its standard deviation.
- Unsystematic riskThe part of an investment's risk that belongs to one company or one issuer — a strike, a fraud, a downgrade — and which diversification can remove, unlike market-wide systematic risk.
Taxation
- Alternate Minimum TaxA floor tax on non-corporate assessees — 18.5% of adjusted total income, 15% for a co-operative society — payable when it exceeds their normal tax, with the excess carried forward as credit for 15 years.
- Bonus strippingBuying units shortly before a bonus issue and selling the originals at the halved NAV to manufacture a capital loss — a loss the Income Tax Act disallows inside a defined 3-month and 9-month window.
- Commodity Transaction TaxA transaction tax on non-agricultural commodity derivatives — 0.01% on the sale of a futures contract, paid by the seller, with separate rates for options.
- Cost Inflation IndexAn index notified by the CBDT each year, with 2001-02 as the base of 100, used to restate the cost of a long-term capital asset in current rupees so that inflation is not taxed as capital gain.
- Determinate trustA trust whose beneficiaries and their beneficial interests are ascertainable from the trust deed throughout its life — the structure that lets a Category III AIF avoid MMR on non-business income.
- Dividend Distribution TaxThe tax a mutual fund scheme itself deducted before paying a dividend, abolished from April 2020 — since when the payout has instead been taxed in the investor's own hands at their slab rate.
- Double Taxation Avoidance AgreementA treaty between two or more countries that prevents the same income being fully taxed twice, either by allocating the taxing right or by the residence country giving credit for tax paid at source.
- General Anti-Avoidance RulesChapter X-A provisions of the Income-tax Act, applying to income arising on or after 1 April 2017, letting the tax authorities deny the benefit of an arrangement that lacks commercial substance and exists mainly for tax.
- Maximum Marginal RateThe highest slab rate of income tax, applied to a Category III AIF's business income at fund level because the fund gets no pass-through — 30% before surcharge and cess.
- Minimum Alternate TaxA floor tax on a company's book profits under Section 115JB, payable when it exceeds tax computed the normal way — which catches corporate investors receiving Category III AIF distributions.
- Resident but Not Ordinarily ResidentA middle residential status for income tax: the person is a resident of India, yet foreign income unconnected with an Indian business or profession stays outside the Indian tax net.
- Section 80CThe income-tax deduction for money put into life insurance, provident fund, ELSS, five-year bank deposits, NPS Tier 1, NSC and home-loan principal, capped in aggregate at Rs 1,50,000 a year.
- Securities Transaction TaxA central government tax collected by the exchange on the sell side of every futures and option trade — 0.05% of futures traded value, 0.15% of option premium, and 0.15% of settlement price on exercise.
- Tax Residency CertificateThe certificate a non-resident investor obtains from its home tax authority to claim benefits under a Double Taxation Avoidance Agreement — without it, Indian domestic rates apply.
Technical analysis
- Moving averageThe average price of a share over a rolling window, recalculated each session — it smooths away daily noise so that the underlying trend, and changes in it, become visible.
- RSIA momentum oscillator scaled 0 to 100 that measures the speed and size of recent price changes — conventionally read as overbought above 70 and oversold below 30.
- Support and resistancePrice levels where a move tends to pause or reverse — support where demand concentrates and forms a floor, resistance where supply concentrates and forms a ceiling.
Valuation
- CAPMA model that prices the return an investor should demand from a share: the risk-free rate plus beta times the market risk premium.
- Discounted Cash FlowA valuation method that estimates the cash a business will generate in future years and converts each year back to what it is worth today.
- Dividend Discount ModelA valuation that treats a share as worth the present value of every dividend it will ever pay, discounted at the return an equity investor demands for holding it.
- Economic Internal Rate of ReturnThe IRR of a project widened to include the direct and indirect economic benefits it creates, whether or not they reach the fund — as distinct from the financial IRR the fund actually earns.
- Enterprise ValueWhat it would cost to buy the whole business — market capitalisation plus debt, less cash — as opposed to market capitalisation, which buys only the equity.
- Free Cash Flow to EquityThe cash left for shareholders after operating costs, tax, capital expenditure, working capital needs and all payments to lenders — what could be paid out as dividend without harming the business.
- Intrinsic valueWhat an asset is actually worth — the present value of the cash it will generate over its remaining life, as against whatever price the market is quoting today.
- IPEV GuidelinesThe international best-practice guidelines for valuing unlisted private equity and venture capital investments at fair value, setting out seven widely used methods for valuing a portfolio company.
- Price to Book ValueShare price divided by book value per share — how many times the accounting net worth of a company the market is willing to pay.
Brief definitions
Another 3,690 terms from across the NISM syllabus have a one-line meaning so far, and are being written up in the same depth as the entries above. Browse them by letter: