Financial planning

239 terms · each links to a full explanation with a worked example and the exam traps

Action biasThe human urge to "do something" even when the best response to a situation is to sit still — in investing, it drives excessive trading, turning what should be a long-term holding into repeated, costly transactions.
AdministratorThe person a court appoints to administer a deceased person's estate under letters of administration — used when a will names no executor, or the named executor cannot or will not act, or dies before finishing the job.
Advanced risk profilersRisk profiling tools that go beyond a simple questionnaire — using scenario responses, or an investor's actual transaction history, to assess risk tolerance instead of relying only on self-reported answers.
Aggregation modelA distribution model where a central company selects and shortlists products for a network of affiliated distributors, who share revenue with it in return for research, technology and support.
Aggressive investorsThe workbook's most risk-tolerant of its three investor grades — experienced investors, comfortable with a range of products, willing to put a significant portion of their assets at risk to pursue long-term return.
AgnateA blood or adoptive relative connected wholly through males — the third tier of heirs under the Hindu Succession Act, inheriting only if there is no Class I or Class II heir.
AmortisationThe repayment of borrowed capital over a fixed term through equal instalments, each of which is split between interest and principal in proportions that shift over the life of the loan.
AnchoringA behavioural bias where an investor clings to a piece of information — often a past price — and keeps basing decisions on it even after it has stopped being relevant.
Annuity dueAn annuity whose payments fall at the beginning of each period rather than the end, which makes it worth more than an otherwise identical ordinary annuity.
Annuity tableA pre-computed table that gives the present-value multiple, or annuity factor, for a given interest rate and number of years, letting you value a regular cash flow without solving the formula each time.
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.
Asset-based feeA financial planning fee charged as a percentage of the client's assets under advice, instead of a flat rupee amount.
Asset protection trustAn irrevocable trust that removes assets from the settlor's own ownership so creditors cannot reach them — effective only because the settlor gives up control, which is also its main drawback.
AssetsThings you own that have economic value, such as a bank balance, a fixed deposit, a house or a car. Assets minus liabilities gives your net worth.
Attribute framingA framing bias in which the same fact, described in positive versus negative terms, changes a decision — investors typically prefer the positively framed description even though the underlying reality is identical.
Availability heuristicThe habit of judging an investment by whichever example comes to mind fastest — a friend's tip, a headline, an advertisement — instead of by actually researching it.
Avalanche strategyA debt repayment strategy that pays off the loan with the highest interest rate first, then the next highest, regardless of the size of each loan.
Blizzard strategyA debt repayment order that starts like the snowball method, clearing the smallest loan first for an early win, then switches to the avalanche method and tackles the highest-interest loan next.
Bucketing of wealthTreating money as if it sits in separate mental buckets — retirement, education, marriage — often leading investors to pick sub-optimal assets for each bucket instead of optimising the whole portfolio.
Bucket strategyA retirement income plan that splits the corpus into three buckets by time horizon — near-term cash, medium-term income assets, long-term growth — so a downturn never forces a sale of risky assets for near-term spending.
BudgetA list of all the money a household expects to receive and spend over a period, and when each amount falls due, used to check whether income is being managed well.
BudgetingListing and itemising a household's income and expenses — mandatory, essential and discretionary — to keep spending within income and generate a targeted amount of savings for goals.
Budget monitoringThe ongoing process of recording actual income and expenses against a budget, so gaps between plan and reality can be spotted and corrected before they derail a household's savings.
Buying insurance for tax savingThe habit of buying life insurance mainly to save tax rather than to meet a genuine protection need — leading many Indians into inadequate cover or poorly performing investment-cum-insurance products.
Capital baseAn investor's overall net worth or financial cushion — a risk-profiling parameter, on the logic that a bigger capital base gives more ability to absorb the downside that comes with taking risk.
Capital PreservationAn investment objective of minimising or avoiding any erosion of the principal. Pursued by highly risk-averse investors and by anyone who needs the money in the immediate short term.
Cash flow managementMaking sure a household's money comes in and goes out in a way that always leaves enough on hand to meet expenses when they fall due, even if total income comfortably exceeds total expenses.
Cash flow mismatchA timing gap in which money going out falls due before money coming in arrives — so a household that earns more than it spends can still run short of cash and be pushed into costly borrowing.
Chasing past performanceInvesting based on which asset class or security did best last year, on the assumption that recent winners will keep winning — a behaviour the workbook likens to driving by looking only in the rear-view mirror.
Choice paralysisA bias in which too many investment options — or too much information about them — leads an investor to avoid deciding at all, rather than evaluate the choices and act.
Class I heirsThe primary heirs of a Hindu male who dies without a will, listed in the Schedule to the Hindu Succession Act, 1956 — they inherit together and to the exclusion of all other heirs.
Class II heirsThe second tier of heirs under the Hindu Succession Act, inherited from only when no Class I heir survives — arranged in nine entries, with an earlier entry excluding a later one.
CodicilA supplementary document that explains, alters or adds to a Will and is read as part of it — executed and attested exactly like the Will itself.
CognateA relative connected by blood or adoption, but not entirely through the male line — the last and lowest-priority category of heir under the Hindu Succession Act, after Class I, Class II and agnates.
Cognitive errorsStatistical, information-processing or memory mistakes that push an investor away from rational behaviour — one of the two broad families behavioural finance sorts investing biases into.
Compounding periodThe interval, such as monthly, quarterly or annually, over which interest is calculated and added to an investment — the more often it happens within a year, the faster the investment grows.
Compound interest rateThe rate at which a present sum of money grows into the future once its interest is reinvested and starts earning interest of its own, the forward-looking twin of the discount rate.
Concurrent WillTwo separate wills written by the same testator — typically one for property in each of two countries — treated as independent, though both must go to probate together if they are related.
Conditional or contingent WillA will that takes effect only if a stated condition or contingency occurs — if the condition fails, the will has no legal force, and probate cannot be granted on it.
Confirmation biasThe tendency to hunt for information that supports a view an investor already holds, and to read new information as confirming it, rather than testing the view itself.
Conservative investorsThe most risk-averse of the workbook's three investor grades — typically new to risky instruments, preferring bank accounts or safe income products, willing to risk only a small slice of assets.
Consumption assetSomething bought for use, like a car, that does not generate income or grow the household's wealth, as opposed to an investment asset such as property or a bond.
Consumption expenditureSpending that, once made, does not create an asset or generate further income, such as dining out or clothes, as opposed to investment expenditure, which builds an asset that can pay the household back.
CrashesA sharp, rapid fall in asset prices as everyone rushes to sell at once — the mirror image of a bubble, and one of the market anomalies behavioural finance uses to explain what standard theory cannot.
Credit cards and impulsive spendingThe workbook's advisory point that a credit card removes the self-imposed brake a budget provides, which is why it names credit cards as a driver of impulsive, stress-linked spending.
Credit Information CompanyAn RBI-licensed company that collects borrowers' repayment records from lenders, stores them, and supplies credit information reports and credit scores to specified users.
Credit Linked Subsidy SchemeA Pradhan Mantri Awas Yojana subsidy for first-time home buyers in the Economically Weaker, Lower Income and Middle Income groups, denied to anyone who already owns a house or has used a housing subsidy before.
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.
Current incomeReturn that arrives periodically while you still hold the investment — rent, interest or dividends — as against capital gains, which are realised only when the investment is sold.
Daniel KahnemanThe Nobel laureate, with Amos Tversky, behind Prospect Theory — the framework the workbook uses to explain how investors actually weigh gains and losses, unlike the rational-actor assumption of standard finance.
DebtMoney borrowed to cover a shortfall, when your expenses are more than the funds you actually have in hand — the booklet's own one-line definition.
Debt and equity allocation driftHow a portfolio's debt/equity split moves away from an investor's fixed new-money policy over time, purely because debt and equity earn different returns on the money already invested.
Debt reschedulingA change to the terms of an existing loan — a lower EMI, a longer tenor, or a lower rate — agreed with the lender when a borrower can no longer service it as originally structured.
Debt servicingAll payments a borrower owes a lender, whether principal or interest — the actual monthly outflow that every EMI, card payment and instalment adds up to, before it is turned into any ratio.
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.
Decumulation or spending phaseThe stage of a person's financial life, usually after retirement, when living expenses are paid from accumulated investments and retirement savings rather than from a salary.
Delayed retirementWorking longer than originally planned to close a retirement shortfall — it helps twice over, by extending the years the corpus grows and shortening the years it must be drawn down.
Deterministic methodThe simplest way to calculate a retirement corpus — one fixed inflation rate and one fixed return throughout, giving a single definite corpus figure but ignoring how the sequence of returns can hurt a portfolio.
Discount rateThe rate used to bring a future cash flow back to today's value — the higher this rate, the lower a given future amount is worth in present-day rupees.
Discretionary expensesHousehold spending that is not essential and can be cut if money is tight — entertainment and lifestyle wants, as against the mandatory and essential living expenses that come before them in a budget.
Disposable incomeWhat remains from monthly income after mandatory expenses — taxes and loan repayments — are met; essential living costs and discretionary spending are paid out of it, and what is left is savings.
Diversified income strategyCombining several sources of retirement income — pension, annuity, government schemes, bonds and mutual funds — so no single source has to carry the whole burden of meeting a retiree's different needs.
DivisibilityWhether an investment can be liquidated in part, or only sold as a whole — real estate is the workbook's example of a non-divisible asset, in contrast to mutual fund units.
Duplicate WillA signed, attested second copy of a Will that the testator keeps for themselves while the executor or trustee holds the original — destroying either copy revokes both.
Earning members and dependent membersTwo opposite risk-capacity factors in a family's risk profile — more earning members raises risk appetite, more dependent members lowers it, since dependants cannot absorb a shortfall themselves.
Emergency fundA pool of money held in liquid assets, sized at six months of household expenses, kept aside so that an interruption in income does not force the sale of long-term investments.
EMIThe Equated Monthly Instalment — the fixed monthly payment on a loan that covers both interest and a portion of the principal, calculated so the loan is fully repaid by the end of its term.
Emotional aspects of retirementThe non-monetary side of retiring — letting go of work-related identity and social connection, filling newly available time, and adjusting emotionally, alongside the financial plan.
EmployabilityHow easily a client could replace lost income through re-employment — a risk-capacity factor, since well-qualified, multi-skilled professionals can afford to take on more investment risk.
Encumbrance certificateA document issued by the sub-registrar's office listing every recorded transaction on a property — sales, purchases and mortgages — used to confirm the seller genuinely holds clear title.
Essential living expensesThe spending a household needs for daily life — groceries, rent, transport, utilities — that comes after mandatory expenses but before discretionary spending in a household budget.
EstateEverything a person owns and owes at the time of death — real estate, investments, insurance policies, bank accounts and items of value — the pool that estate planning organises for distribution.
Estate debtAll debts and obligations an individual owes at death — housing and car loans, credit card dues, business outstandings and tax liabilities — one of the three constituents an estate plan must account for.
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.
ExecutorThe person named in a will to carry it out — obtain probate where needed, collect the assets, pay debts, taxes and expenses, and distribute the estate as the will directs.
ExpenditureMoney spent on various items, both essential and non-essential. The booklet teaches you to save first and treat expenditure as what is left: Income − Savings = Expenditure.
Expenses ratioAnnual recurring expenses divided by annual income — the share of a household's earnings consumed by regular living costs, and the exact mirror of the savings ratio.
Family settlementA voluntary agreement resolving disputed or rival property claims within a family — treated as neither a transfer nor a gift, so it escapes capital gains tax and clubbing provisions.
Financial assets ratioThe share of an investor's total assets held in financial form — shares, deposits, mutual funds — rather than physical form such as gold or real estate, expressed as a percentage.
Financial educationAn organised effort — this SEBI booklet is one — to teach the public to manage money; distinct from financial literacy, which is the skill such teaching produces in a reader.
Financial goalA financial objective — a child's education, a house, retirement — to which an amount and a timeline have been assigned, so that it can actually be planned for and funded.
Financial inclusionGovernment and RBI efforts to bring every household into the formal banking system — zero-balance accounts, low-cost demat accounts and schemes like Jan Dhan Yojana are the booklet's three examples.
Financial literacyThe everyday skill of managing your own money well — income, spending, saving, investing, borrowing and insurance — which the booklet calls a life skill every person needs.
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.
Financial productsInvestment options such as a bank fixed deposit, shares or a mutual fund — as opposed to non-financial products like land, gold or silver — that the booklet asks investors to judge on safety, liquidity and return.
Financial risk toleranceA client's attitudes, values, motivations, preferences and experiences around investment risk, measured through a risk profile questionnaire under SEBI's mandatory risk-profiling requirement.
FIREA personal finance movement built on saving and investing aggressively — often 50% or more of income — to become financially independent and retire well ahead of the conventional age.
Fixed annuityAn annuity that pays a fixed, unchanging amount at each regular period, agreed at the time of investing — as against a floating annuity, whose payouts move with an inflation or index benchmark.
Fixed rate loanA loan whose interest rate stays the same for the entire tenure, fixed at the time of borrowing — useful for locking in a low rate, as against a floating rate loan whose rate resets with a benchmark.
Floating annuityAn annuity whose payout is not fixed but moves with a chosen benchmark — inflation, an index, or another agreed return — decided when the investment is made, as against a fixed annuity.
Floating rate loanA loan whose interest rate is reset periodically in line with the benchmark it is linked to — such as the repo rate or a bank's MCLR — so the EMI or tenure changes as rates move.
ForecastingThe disciplined look-ahead that turns known data and expected changes into an estimate of future income or expenses — the basis a household budget is then built on.
Framing and risk tolerance questionsA risk questionnaire's wording can itself bias the answer — a client reacts differently to a "what you could gain" question than to an equivalent "what you could lose" question about the same choice.
Free Full Credit ReportThe complete credit report, including the credit score, that RBI requires every credit information company to give each individual borrower once in a calendar year at no charge.
Frequency of compoundingHow often interest is calculated and added within a year — monthly, quarterly or annually — and the reason the same annual rate delivers a different actual return depending on the frequency chosen.
Full blood relationshipUnder the Hindu Succession Act, two people descended from the same father and the same mother — a status that lets them inherit together, unlike a uterine relationship, which the Act excludes.
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.
FV functionThe spreadsheet function that converts a stream of contributions, growing or fixed, into their value at a future date — the tool the workbook uses to project a retirement corpus and future living costs.
GiftA voluntary transfer of movable or immovable property without consideration from a donor to a donee — usually irrevocable, and exempt from tax when received from specified relatives, on marriage or under a will.
Goal-based investingAn investing approach that starts from a specific personal goal — its cost and its date — and works backward to the asset allocation and investments needed to reach it.
Goal settingThe first step of financial planning: turning a vague wish into a goal that is specific, measurable, realistic and time-bound, then ranking the resulting list by priority.
Goal sheetA table listing each of an investor's financial goals with its priority, time period and amount needed — used to assess needs before deciding how each goal should be invested.
Growth-oriented assetAn asset held mainly for capital appreciation rather than regular income — such as equity shares or gold — as against an income-oriented asset, held mainly for the periodic payout it generates.
Half-blood relationshipUnder the Hindu Succession Act, two people who share one common ancestor but were born of different wives — commonly, the same father but different mothers — and still inherit normally.
Herbert SimonThe Nobel laureate (1978) credited with Bounded Rationality — the idea that investors, limited by time, information or ability to process it, settle for a "satisficing" choice rather than the optimal one.
Herd mentalityThe behavioural tendency to follow what other investors are doing rather than one's own analysis — often profitable to resist, since going against the herd has repeatedly been the more rewarding strategy.
Highly concentrated portfolioA portfolio parked in just a couple of securities with no real diversification — the mirror-image mistake of over-diversifying across too many similar funds, and the one the Adviser must correct in the other direction.
Hire purchaseAn agreement to buy an asset through an initial payment followed by instalments, with ownership passing to the buyer only once the final instalment is paid — unlike a lease, where the lessor stays the owner throughout.
Holograph WillA will written entirely in the testator's own handwriting — the workbook treats this as good evidence of a genuine will, distinct from a typed will or one drafted by someone else.
Home equity loanA loan against property, or LAP, where the borrower pledges their own home as collateral to raise funds for any purpose, capped by the property's value and the lender's advance rate.
Hybrid trustA trust that pays a fixed, pre-decided amount to beneficiaries out of part of the trust property, while the trustee has full discretion over how the remainder is distributed.
IncomeMoney earned from sources such as salary or wages. In the booklet it is the starting point of every budget: savings are what is left of income after expenditure.
Income-expense statementA personal financial statement showing actual income earned and actual expenses incurred over a period, recorded on an accrual basis rather than when cash actually moves, revealing the real surplus or shortfall.
Income-oriented assetAn asset held mainly for the periodic income it pays out — such as a bank deposit — as against a growth-oriented asset, held mainly for the rise in its own value.
Income Replacement MethodA way of sizing retirement income by growing today's income forward to the retirement date and then applying a replacement percentage to it, rather than listing out post-retirement expenses one by one.
Income Replacement RatioGross income after retirement divided by gross income just before it — the share of pre-retirement income needed to hold the same standard of living, usually put at 70 to 90 percent.
IntestateDying without making a will. The property then passes to heirs under the succession law that applies to the person, which may not be what they intended.
Investment constraintsLimits on the investments an investor can take exposure to — liquidity needs, time horizon, regulatory and tax constraints, exposure limits, and unique needs and preferences — recorded in the IPS.
Investment ObjectivesAn investor's goals expressed in terms of risk, return and liquidity preferences — such as capital preservation, capital appreciation, current income or tax saving.
Investment turning into tradingThe behavioural failure in which action bias drives so many and such frequent transactions that a long-term investment activity becomes a trading activity.
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.
Joint holdingProperty held by more than one person and accessed by them subject to the mode of operation, used as a simple way to let a spouse or child reach an asset without waiting for succession.
Joint tenancyA form of co-ownership carrying a right of survivorship, in which all tenants must acquire their interest at the same time from the same transaction and no tenant may possess any part exclusively.
Joint WillA Will made by two or more persons, valid in Indian law, recognised as two Wills and intended to take effect after the death of both testators, with each testator disposing of property as an individual Will.
Katha certificateA property document the workbook describes as confirming that an apartment is constructed as per the approved plan, needed to register or transfer a property and to apply for water and electricity.
LeaseA contract in which the owner of an asset, the lessor, lets another person, the lessee, use it for a period in exchange for lease payments — and keeps ownership throughout.
Legal heirThe person entitled by law to a deceased person's estate — distinct from a nominee, who only holds the money in trust until it reaches the rightful heirs.
Legal heir certificateA certificate issued by the Tehsildar identifying the living heirs of a deceased person, used for claims such as pension, provident fund and gratuity where no nominee exists.
LegateeThe person named in a Will to receive a portion of the deceased person's estate, as distinct from the executor, who is named to administer it.
Letters of administrationA court grant authorising an administrator to administer a deceased person's estate under a will when there is no executor able and willing to act — the alternative to probate.
Leverage ratioTotal liabilities divided by total assets — the personal finance ratio that measures how much of a household's asset build-up was paid for with debt.
LeveragingUsing borrowed funds rather than own funds to buy an asset — it can raise the return on the investment, and it magnifies the loss by the same mechanism.
LiabilitiesWhat you owe to others or have borrowed from them, such as a home loan, a car loan or money borrowed from a person. Assets minus liabilities gives your net worth.
Liquid assets to net worth ratioLiquid assets as a share of net worth — read against the timing of the household's goals, so a low figure is right when goals are distant and a higher one when they are near.
Liquidity ratioLiquid assets divided by monthly expenses including loan repayments — the number of months a household could keep paying its bills from short-term assets if income stopped.
Living WillAn advance directive written primarily for physicians, stating a person's wishes for end-of-life care in situations where they are unable to communicate their decisions.
Loss aversionThe behavioural tendency to prefer avoiding a loss over acquiring an equal gain — it is better not to lose Rs 5,000 than to gain Rs 5,000 — which keeps investors out of sound opportunities.
Mandatory expensesThe first layer of a household budget: amounts that must compulsorily be spent — tax, loan repayment and provident fund contribution — before essential living or discretionary spending.
Market timingTrying to pick the exact best moment to buy or sell. The booklet calls it a "complex or even impossible duty" and offers regular investing (SIP, rupee cost averaging) instead.
Married Women's Property Act, 1874An 1874 Act that shields a married woman's own earnings and savings from her husband's creditors, and lets a husband write a life policy that is held in trust for his wife and children.
Medical corpusA pool set aside for the health costs insurance does not pay — medicines, consultations, tests and long-term care — which the workbook says must hold at least three years of such expenses in liquid assets at retirement.
Middle Earning YearsThe lifecycle stage of peak, stable income and settled expenses, when 50 to 60 percent of the portfolio can stay in growth assets and any shortfall in retirement saving should be caught up.
Model portfoliosA ready-made asset allocation an adviser keeps on file for a type of client, such as a young earner or a retired couple, used as a starting point and then adjusted for the individual.
Moderate investorsThe middle grade of the workbook's three-way investor classification: some experience of risky assets, willing to risk part of their money for long-term goals, but not most of it.
Monthly surplus in handThe cash left with a household at the end of the month after every expense and investment — which is smaller than its savings, because mandatory deductions such as PF are savings too.
MoratoriumA period in which loan repayments are paused because of extraordinary conditions, without being treated as a default — while interest keeps accruing on the outstanding balance.
MortgageA loan secured by a charge on the property it funds: the borrower keeps the asset in his own name, and the lender can take it over and sell it if the loan is not repaid.
MutationThe state-government process of updating land revenue records to show a property's current owner, useful evidence of possession, but never proof of legal title.
Mutual WillTwo testators leaving each other reciprocal benefits in their wills, valid only where the same two people are, for each other, both testator and legatee.
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.
Non-financial productsPhysical assets bought as an investment — land, gold, silver and the like — as distinct from financial products such as fixed deposits, shares and mutual funds.
NPER functionThe Excel function that returns how many periods a loan takes to clear, given the rate, the instalment and the amount outstanding — the workbook's tool for the period of the loan.
Nudging through advance ground rulesAn adviser agreeing rebalancing and other rules with a client in advance, so selling high and buying low happens automatically instead of depending on the client's mood in the moment.
Objective risk assessment processSEBI's Regulation 16 requirement that an Investment Adviser's process for gauging a client's willingness and ability to take risk must be unbiased, not weighted to favour some answers over others.
Objective role of the adviserThe adviser standing outside a client's emotional attachment to a goal, naming the trade-off honestly and pointing to alternatives the client is too invested to see for themselves.
Objectives and suitable investmentsThe workbook's four-way match between an investment goal, such as growth, income, liquidity or capital preservation, and the instruments that actually deliver each one.
Official TrusteeThe state-appointed default trustee who receives and holds a Married Women's Property Act policy's proceeds whenever the policyholder has not named a special trustee of his own.
Ordinary annuityA series of equal payments falling at the end of each period — the default form of annuity, and the one every standard present value and EMI calculation assumes.
Partial education loanAn adviser's alternative to fully funding a child's higher education from savings: borrow part of the cost so the child repays it later from their own post-qualification earnings.
Paul Samuelson on investingEconomics Nobel laureate Paul Samuelson's line that investing should be dull, not exciting, used by the workbook to explain why an action bias drives clients into too many, too-frequent trades.
Per capita distributionThe Sunni-law method of dividing a Muslim estate equally by head-count among the heirs, so each person's share depends only on how many heirs there are.
Percentile surveyA behavioural-finance example where employees are asked which percentile of relative performance they place themselves in — most rank themselves 60-75, an aggregate impossibility that reveals overconfidence.
Periodic updating of the profileThe SEBI (Investment Advisers) Regulation 16 requirement that client information and risk profile be refreshed periodically, with a review recommended on special events such as a change in family, income or assets.
PerpetuityA constant cash flow received every period with no end date. Its present value is simply the cash flow divided by the discount rate: PV = C / r.
Personal balance sheetA statement of an individual's or household's assets and liabilities at a particular date, whose difference is net worth — the starting point for the personal finance ratios.
Personal financeThe practice of managing your own money — income, spending, saving, investing, insurance, tax and retirement — so both daily life and future goals are funded.
Per strip distributionThe Shia-law method of dividing a Muslim estate branch by branch, so an heir's share depends on the size of their family strip, not simply on the total number of heirs.
PhilanthropyCharitable giving as a topic an Investment Adviser raises with clients as part of estate and financial planning — a 3-step conversation the workbook sets out: start it, time it well, then follow up.
Physical assetsTangible assets such as real estate, gold and other precious metals — held for appreciation, treated as natural inflation hedges, and illiquid, unregulated and large-ticket by nature.
PMT functionThe spreadsheet function that converts a target corpus into the fixed periodic saving needed to reach it — the arithmetic behind every "how much should I invest a month" answer.
POA registrationRegistering a power of attorney with the authorities — mandatory only where it creates an interest in immovable property, and valuable otherwise because a registered POA cannot easily be challenged later.
PPMT and IPMTThe two spreadsheet functions that split a single loan instalment into its principal part (PPMT) and its interest part (IPMT), for any instalment number you name.
Pradhan Mantri Awas YojanaThe Government of India's housing subsidy scheme — referenced in the workbook's Niwas Project case study, where a social enterprise helped identify slum-dwelling beneficiaries eligible for it.
Pre-EMI interestInterest-only monthly payments on a loan that has not yet been fully disbursed — typical of home loans for under-construction property — before full EMIs of principal and interest begin.
Pre-nuptial agreementAn agreement entered into before marriage setting out how finances and other matters will be dealt with if the couple separates — a device whose legality in India the workbook says is not established.
PrepaymentRepaying part or all of a loan's capital before it is due, which reduces the outstanding principal and the remaining EMI period — subject to any lock-in or prepayment charges.
Present valueWhat a sum of money due in the future is worth today, found by discounting it back at the rate the money could earn: PV = FV ÷ (1 + r)^n.
Prevention strategyThe first of the workbook's answers to a retirement shortfall: review the corpus assumptions periodically and after every life event, so a gap is found early enough for time to close it.
Privileged WillA Will that a soldier engaged in actual warfare, an airman similarly engaged, or a mariner at sea may pronounce orally before 2 witnesses present at the same time, dispensing with the usual writing requirement.
ProbateA copy of a will, certified under the seal of a court of competent jurisdiction, certifying that the will was proved on a certain date — the legal confirmation attached to the will it certifies.
Profiling before advice and free trialsThe SEBI (Investment Advisers) Regulation 16 requirement that risk profiling be completed, and the resulting profile communicated to and consented by the client, before any advice or free trial is offered.
Psychographic analysisProfiling an investor's personality and behavioural traits to set the risk profile — treating the investor as a normal human prone to bias rather than a purely rational actor.
Public cum private trustA trust where part of the income is applied for a public purpose and part goes to private individuals — the private portion is assessed and taxed as a private trust, and is not exempt from income tax.
PV functionThe spreadsheet function that converts a stream of future payments into the single lump sum needed today — the tool the workbook uses to size a retirement corpus and a life insurance cover.
RATE functionThe spreadsheet function that computes the periodic rate of return implied by a series of payments and a known future value — used to work out the actual return an insurance-cum-investment plan delivers.
Reasons for not investing overseasThe five reasons the workbook gives, beyond simple unfamiliarity, why Indian investors under-invest in overseas securities — lack of knowledge, legal restrictions, cost of access, tax conflicts and lack of expert advice.
Recency biasLetting the latest market experience dictate decisions — expecting a rally or a crash to repeat — so investors over-allocate to risky assets in bull markets and flee to safety after a fall.
Redhead conditionsKeith Redhead's (2008) list of 5 conditions that make a speculative bubble more likely to emerge — inexperienced traders, high valuation uncertainty, asymmetric payoffs, easy borrowing and difficult short selling.
Reference pointIn Prospect Theory, the baseline of well-being against which an investor evaluates every choice as a gain or a loss, rather than judging outcomes against total wealth in absolute terms.
RefinancingRepaying an existing loan by taking a new one — usually at a lower interest rate or over a longer tenure — to reduce the total interest cost or the monthly outgo.
Remedies for an under-funded goalThe two courses of action the workbook names when a periodic portfolio review shows a goal is falling short of target — save more towards that goal, or divert funds from a less important goal.
Residuary clauseA clause in a will that directs any asset not specifically named in it to one identified beneficiary, so nothing is left without a named recipient.
Resources and need to take riskTwo factors, alongside psychology, that decide whether an investor actually takes a risk — the resources they have available to absorb a loss, and how important the payoff is to them.
RestA lender's interest-charging cycle — how often the outstanding loan is recomputed for interest — which can differ from the repayment cycle and raise the true cost of a loan.
Return on equity under leverageHow borrowing changes the return an investor earns on their own money — in the workbook's own caselet, a 10% yielding asset bought with 1.4 times leverage returns 11.4% on the investor's own funds.
Revolving creditCredit card borrowing that arises when the bill is not paid in full by the due date and the balance is carried into following cycles — at 3% a month, a compounded 42.6% a year.
Richard ThalerThe 2017 Nobel laureate the workbook credits, alongside Daniel Kahneman, with founding behavioural finance — named for mental accounting (1999) and for a pension-enrolment nudge that overcame status quo bias.
Risk capacityAn investor's financial ability to absorb loss, distinct from risk tolerance, the psychological willingness to do so, and gathered by a portfolio manager to set the investment policy.
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.
Risk toleranceAn investor's willingness to take risk. Chapter 9 separates it from risk capacity, which is the financial ability to take risk; suitable portfolios need both.
Risky choice framingA framing bias where the same outcome, described as a risk of losing 10 of 100 lives versus a chance to save 90 of 100, leads people to choose differently, even though the numbers are identical.
SavingThe difference between money earned and money spent. Saving becomes investment only when that surplus is committed for a period in the expectation of getting back a larger amount.
Savings ratioSavings relative to income, which the workbook says should ideally rise over the life cycle — read alongside a falling expense ratio and a debt-to-income ratio that peaks around a big loan.
Savings to income ratioTotal accumulated savings divided by annual income — a measure of how prepared a household is for long-term goals such as retirement, expected to rise with age.
Sham WillA document executed with all the formalities of a Will but without any intention of testamentary operation — it is a nullity, because intention is the primary characteristic of a valid Will.
SharersUnder Muslim law, the 12 heirs entitled to a certain fixed share of the deceased's property — as against Residuary heirs, who take only what is left after the sharers have taken their part.
Six-step financial planning processThe 6-stage sequence an Investment Adviser follows with a client — define the relationship, gather data, analyse, recommend, implement, monitor — set out in Chapter 1 of the Series X-A workbook.
SMART goalsThe workbook's five-part test for a usable financial goal — Specific, Measurable, Achievable, Realistic and Time-bound — each illustrated with a wrong and a right version.
Snowball strategyA debt repayment strategy that clears the smallest outstanding loan first and rolls the freed-up payment into the next, ignoring interest rates — used mainly for motivation.
Solvency ratioNet worth divided by total assets — the share of a household's assets it truly owns after all liabilities, and the complement of the leverage ratio.
Staggering of goalsPushing a financial goal further out in time, instead of cancelling it, when the household's current finances cannot fund it in the period originally wanted.
Stand Up IndiaA government scheme facilitating bank loans to SC, ST and women entrepreneurs above 18 for setting up a new manufacturing, trading or services enterprise.
Stochastic methodA way of sizing a retirement corpus that simulates thousands of possible return sequences instead of assuming one fixed return, and reports a withdrawal rate that survives most of them.
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.
Succession never remains in abeyanceA rule of Hindu law of succession: on the death of a Hindu, succession opens at once and the property vests immediately in the heirs - there is no interval in which the estate belongs to nobody.
Succession planningPlanning to keep a family business viable and pass control of it to the next generation while its owner is still alive — a distinct exercise from estate planning, which deals with an individual's personal assets.
Sukanya Samriddhi YojanaA Government savings scheme for a girl child, opened by a guardian when she is 10 or younger. Deposits qualify under Section 80C; partial withdrawal for education or marriage is allowed after 18.
Tax SavingThe investment objective of choosing an investment partly to cut tax — using the deductions from taxable income, or rebates from tax payable, that the tax authorities allow.
Testamentary capacityThe soundness of mind a testator must have to make a valid Will - sufficient capacity to understand his property, his relation to the possible objects of his bequest, and the bearing of the Will provisions.
Testamentary guardianA guardian appointed under the provisions of a Will, most often for minor children, who manages the child affairs within the limits the Will sets.
Testamentary trustA trust created through a Will, which takes effect on the death of the settlor - it is subject to the rulings under the Will and therefore goes through probate, but attracts no stamp duty and no capital gains.
TestatorThe person who makes a Will — Section 2(h) of the Indian Succession Act, 1925 defines a Will as the legal declaration of the testator's intention about his property, to take effect after his death.
The Pool ApproachMeeting all financial needs from one undivided pool of savings, rather than earmarking investments to specific goals — simpler to run, but leaves the investor unsure of the true investment horizon.
Three pillars of investmentThe workbook's framework for every investment decision — safety, liquidity and return — weighed together rather than any one chosen alone.
Ticket sizeThe minimum amount an investment requires — from as little as Rs 50 or Rs 100 in some avenues to more than Rs 1 lakh or even Rs 1 crore in others.
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.
Total assetsThe current market value of everything an individual owns — physical and financial — and the figure from which total liabilities are subtracted to get net worth.
Total liabilitiesEvery loan and unpaid bill a household owes — home loans, car loans, personal loans and card dues — added together; assets minus this figure gives net worth.
TrustA legal arrangement in which property is transferred to trustees, who hold legal title and control it for identified beneficiaries on terms set out in a trust deed.
Trust perpetuitiesThe rule that a trust cannot last for ever: Indian law caps the period within which gifts in a trust must vest, and limits the accumulation of trust income to the transferor's lifetime or 18 years.
Two-step education fundingThe workbook's method for funding a multi-year education goal from one set-aside: inflate each year's fee to the year it falls due, then discount the later years back to the set-aside date.
Uterine blood relationshipTwo people with the same mother but different fathers — a relationship the Hindu Succession Act's Schedule excludes from Class I and Class II inheritance, while Muslim law counts uterine siblings among its sharers.
WasiyatA will under Muslim law — valid in writing, orally or by gesture, made by a person of sound mind aged 15 or above, but limited to one-third of net assets, the rest passing to heirs.
WillA written legal declaration of how a person wants their assets distributed after death. Registration is not compulsory but preferable; without a Will, assets pass under personal laws.
WindfallAn unexpected lump sum — an unusually high bonus, an inheritance, a lottery win — of which a healthy portion should be set aside for the future or used to prepay loans.
Young Earner stageThe lifecycle stage right after starting work, when income is just enough to cover expenses, and building an emergency fund takes priority over long-term investing.
Young Family stageThe lifecycle stage after Young Earner, with stable but still-limited household income, where protection through insurance and an emergency fund comes first, and 60% to 70% of long-term savings can go into growth assets.
Zero base budgetingBuilding a budget from a clean slate each period and justifying every expense afresh, instead of adjusting last period's numbers — a corporate technique applied to household budgets.