If you are new to investing some of the terms used to describe investments can be quite alien to you. We have simplified 41 of these terms to make investing easier and more engaging for you.

  1. Asset Management Company (AMC): A company that invests investor’s pooled money into various securities in order to provide diversification and investing options they wouldn’t have been able to achieve by themselves.
  2. Assets Under Management (AUM): This is the total market value of all the assets a financial institution, like an AMC, controls on behalf of its clients.
  3. Bonds: Essentially, a loan agreement between the issuer (commonly, the government) and the investor.
  4. Capital Growth: The increase in the market value of an asset between the time of measuring and the time of acquiring. If you buy a piece of land today for Rs. 10 Lakh today, and it is worth Rs. 15 Lakh after a few years, the Capital Growth is Rs. 5 Lakhs.
  5. Certificate of Deposit: A certificate issued by a bank to a person depositing money for a specified length of time at a specified rate of interest. Essentially, the receipt of a bank deposit.
  6. Closed-Ended Schemes: Funds whose units are open to purchasing only during the initial stages of its formation.
  7. Compounded Annualised Growth Rate (CAGR): The growth of a sum of money assuming compound interesting.
  8. Corpus: Used to refer to the collection of money invested/under management.
  9. Debenture: A form of debt security not secured by physical assets or any collateral.
  10. Debt Fund: A fund that invests exclusively in debt securities, like bonds, debentures etc.
  11. Diversification: The process of enlarging/varying the kinds of securities the fund has invested into/ you have invested into.
  12. Dividend Plan: (Vs. Growth Plan) A scheme in which the fund pays dividends from time to time as and when the fund manager declares dividends for their clients.
  13. ELSS: Equity Linked Saving Schemes are funds that invest majorly in equity stocks in order to pursue long term growth. ELSS carry tax benefits under Section 80C of the Income Tax Act, 1961.
  14. Entry Load: Charge/Fees to be paid to enter into business with a mutual fund/invest in a fund.
  15. Equity Fund: A fund that invests exclusively in equity stocks.
  16. Exit Load: Charge/Fees to be paid to exit a mutual fund.
  17. Expense Ratio: The ratio of AUM to be used for paying the fund’s expenses (administrative, organizational, advertisements etc.) Each client has to pay this amount of their investment to the fund they are investing in.
  18. Fund Manager: A person responsible for carrying out objective strategies to achieve the fund’s declared goals.
  19. Growth Plan: (Vs. Dividend Plan): A scheme in which the fund reinvests any capital gains from your investment. This results in compounding interest of your money and is used to gain higher rates of return over the long term.
  20. Holding Period: The period of time an asset is owned for by a person or a company.
  21. Portfolio: The collection of investments held by an individual/fund/company.
  22. Holdings: Holdings are the contents of an investment portfolio held by an individual or entity, such as a mutual fund or a pension fund.
  23. Index Fund: A type of Mutual Fund with a portfolio constructed to measure and move with movement in a particular financial index, like the BSE.
  24. Investment Objective: The purpose of a particular portfolio and how it helps achieve the person’s/company’s financial goals.
  25. KYC: Know Your Customer is a standard verification process used to establish a client’s information, like name, address, identification numbers, etc.
  26. Load: Any charge/Fees related to entry/exit/operation of a fund to be paid by the client in addition to the premium.
  27. Lock-in- Period: The period of time in which you cannot make any transactions with your investments starting from the date of investment. No redemptions are allowed during this period.
  28. Redemption: The process of selling units from your portfolio to redeem their current market value.
  29. Long Term Capital Gain: Change in market value of assets which are held for a period greater than 1 year.
  30. Mutual Fund: An investment programme in which multiple people pool their money to invest in a diversified portfolio and share any gains in proportion to the amount invested.
  31. Net Asset Value (NAV): The cost/value of one unit of a fund’s shares. It is calculated as the difference between the fund’s total asset and its liabilities, divided by the total number of shares.
  32. Open Ended Schemes: Funds, whose units are open to purchase and redeem at any time throughout the year.
  33. Portfolio Manager: A more general term for a Fund Manager, this refers to the person/group of people responsible for managing all investments under a portfolio.
  34. Price-To-Earnings Ratio (P/E): The ratio of the price of one share of a company/fund to the earnings that one share can be expected to provide.
  35. Redemption Fee: A fee to be paid in order to redeem one’s investment from a fund.
  36. Risk: The probability that the actual return will be less than the expected return.
  37. Sector Fund: A fund that invests exclusively in one sector of the economy, e.g. the agricultural sector.
  38. SIP: Systematic Investment Plans are a tool used by investors to invest in Mutual Funds in the form of small recurring investments over time.
  39. Treasury Bills: A very short-term security issued by the government with no risk and moderate returns.
  40. Unit: Mutual Fund Units are essentially the shares of the fund, proportional to which returns are given out.
  41. Volatility: Refers to the degree of variation/sensitivity of returns given security or index.
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