Terms Used in Stock Market, Finance, Investing, Tax and Insurance

Terms (Terminologies) used in the Stock Market, Investing, Finance, Tax & Insurance

There are several financial products available in the market. In this article, I will summarize most common terms used in the stock market, finance, investing, tax and insurance field.

Stock/Share: A Stock is not just a piece of paper or the ticker symbol on trader’s desktop computer but it is the ownership interest of the company. Say for Example if one company has total 100 shares and you have 10 shares of that company than you are 10% owner of that company. So whenever you buy a stock of some company, think that you are buying some part of the ownership of that company.

Entry & Exit Load: These are now obsolete in India as SEBI has banned mutual funds charging entry loads. Let me tell you that what it means. Well, it is the commission/fee that the mutual funds in India used to charge from the investors from their initial investment. It used to be 2.5%. But now the Entry load is 0%.

NAV (Net Asset Value): It is the price of one unit of the mutual fund. Suppose if you have 100 units of some mutual fund and its NAV is Rs.200 than your investment value is Rs.20,000.

NFO (New Fund Offer): Whenever a mutual fund house declares and launch the new scheme, it is known as NFO. It is also known as the public issue of the mutual funds. There are many NFO lovers in India who primarily invest in NFOs and later on after few months sell it.

Open & Closed Ended Mutual Funds: Open Ended mutual funds means there is not any restriction of buying and selling. Means you can any time enter into that mutual fund and any time exit from that mutual fund. While the close ended mutual funds means they will have the lock-in period of minimum 3 years. Means once invested, you can not exit from it before completion of the lock-in period.

Growth Option in Mutual Funds: It means that all the dividends and profits of your invested money in the mutual funds will keep investing again and again to build even larger corpus.

Dividend Option in Mutual Funds: It means that the fund will declare dividends to you from the profits generated by your invested money thus each time when the fund house declares the dividends, the NAV price will drop by that much percent.

Fund House: It is the Company which manages all the mutual fund schemes under one roof say for Example, Reliance fund house, SBI Fund House…etc..

Equity Fund: These are the mutual funds which invest most of their money in the equities and very little to nothing in the debt instruments. The primary goal of the equity funds is to generate profits by investing in the stocks.

Debt Funds: These are the funds which invest most or all of their money in the debt instruments.

Balanced Fund: A balanced fund is one which invest the part of your money in the equity and the part of it in the debt. The allocation can be anything. It can be 50:50, 60:40. 70:30 or anything else.

Monthly Income Funds (Plans): These are the types of balanced funds only whose primary goal is to generate steady and regular monthly income from your money by investing 70% in Debt and 30% in Equity for the growth of your Capital.

Sectoral (Thematic) Fund: It is a fund which invest in particular sector of the economy. Say for Example, Power, Banking, Pharma, IT…etc..

Equity Diversified Mutual Fund: It is a fund which invest in all the economy sectors and thus it has a diversified portfolio of stocks under it.

Fund Managers: It is a person who is in charge of your mutual fund. The Fund manager and his team of research analysts analyze the market trends and use their expertise and experience to invest your money in such a manner that it generates maximum returns.

Mutual Fund Benchmark: It is the underlying index to which the mutual funds compare their returns. Say for example, if the benchmark of some mutual fund is Sensex than it will compare its returns with the Sensex.

SIP (Systematic Investment Plan): SIP is a method of investing in the mutual funds at regular fixed intervals say every month, every quarterly or every half-yearly. The main purpose of SIP is that, when the market will be up, you will end up buying less units and when the market will be down, you will end up buying more units and thus in the long run your overall entry price will markedly reduce and generates descent profits.

Stock Market: It is the market which facilitates the buying and selling of the securities (Stocks & Bonds) among the investors. It is just like the Vegetable market, Fish market or any other market.

Sensex & Nifty: These are the broad indices to monitor the over all performance of the stock market. They contain the stocks of the leading companies from each and every economic sectors of India. The Sensex is made up of 30 stocks while the Nifty is made up of 50 stocks. In Layman’s language they are the barometers of the stock markets.

Market Capitalisation: It means total number of shares from all the companies listed on the stock exchange multiplied by the current market price. Currently the Indian Economy is of US $ 1 Trillion size while the US Economy is of $ 12 Trillion size by this method.

IPO (Initial Public Offer): It means Public Issue of the Company. Whenever any company first time goes to public for the listing on the stock exchange, it publish IPO so that the investors can buy the shares of these companies during IPO and later on sell it into the secondary market to other investors once the company is listed on the stock exchange.

Endowment & Money Back Insurance Plans: In these kind of Insurance plans if you survive on maturity, the company will give you lump sum amount back. However, these policies charge much more premiums than the traditional term insurance plans.

Term Insurance: Well, in Simple language, you put a bet on your life. Means you put a bet of Rs.5000 every year to cover Rs.50 Lakhs. So suppose if you survive at the end of the year, you will lose your 5000 bet (Premium). But if you win (Means if you Die…!!!) than your nominee will receive Rs.50 lakhs of some for your just Rs.5000 of annual bet.

ULIP (Unit Linked Insurance Plans): These are the Insurance cum Investment plans. Means they charge you higher premiums and the part of your premium will go towards buying the life insurance cover while the part of the premium will go towards long term investing to generate returns for you. These are costly and should be avoided. In other words, these are the opaque mutual funds which will charge you lots of fees.

Short Term & Long Term Capital Gains & Loss: In case of Equity & Mutual Funds (Paper Assets) the short term capital gain/loss means any gain/loss within less than 1 year and long term capital gain/loss means any gain/loss after 1 year.

While in case of the Real Estate, House and Jewellery, the Short term capital gain/loss is less than 3 years and long term capital gain/loss is more than 3 years,

Portfolio: Portfolio means baskets of several things. It can be a basket of vegetables, Fish, Stocks, Bonds, Mutual Funds, Real Estate or anything.

Commodity: A Commodity is some good for which there is demand in the economy such as gold, silver, sugar, grains, or anything else….