Dictionary

Finance Dictionary.

Look up any term. Definitions are written for beginners.

A

Alpha: Excess return of an investment over a benchmark.
Asset: Anything of economic value that can produce income or grow in value.
Asset Allocation: The mix of asset classes (equity, debt, gold) in a portfolio.
Amortization: Gradual repayment of a loan through scheduled installments.
Annuity: A series of equal payments made at regular intervals.
APR: Annual Percentage Rate — the yearly interest cost of a loan including fees.
Arbitrage: Simultaneous buying and selling to profit from a price difference between markets.
AUM: Assets Under Management — total market value of assets a fund manages.

B

Beta: Measure of a stock's volatility relative to the market. Beta of 1 moves with the market.
Balance Sheet: A snapshot of a company's assets, liabilities, and equity at a point in time.
Bear Market: A market that has fallen 20% or more from its recent high.
Blue Chip: Large, established, financially sound companies with a history of reliable performance.
Bond: A debt instrument where the issuer pays interest and returns principal at maturity.
Book Value: Net asset value of a company (assets minus liabilities).
Bull Market: A market marked by sustained rising prices.

C

CAGR: Compound Annual Growth Rate — smoothed annual return over a period.
Capital Gain: Profit from selling an asset for more than its purchase price.
Cash Flow: Net amount of cash moving in and out of a business.
Circuit Breaker: Automatic trading halt triggered by extreme market moves.
Commodity: A raw material (gold, oil, wheat) traded on exchanges.
Compound Interest: Interest earned on both principal and previously accumulated interest.
Convertible Bond: Bond that can be converted into a fixed number of company shares.
Correction: A short-term decline of 10%+ in a market from recent highs.
Coupon: The periodic interest payment made by a bond.
Credit Score: A number reflecting your creditworthiness based on borrowing history.
Currency Risk: The risk that foreign exchange rate movements reduce returns.

D

Debt-to-Equity: Ratio comparing a company's total debt to shareholders' equity.
Deflation: A general decline in prices, opposite of inflation.
Depreciation: Accounting method to allocate the cost of an asset over its useful life.
Derivative: A contract whose value depends on an underlying asset (futures, options).
Diversification: Spreading investments to reduce exposure to any single risk.
Dividend: Portion of profit paid to shareholders.
Dividend Yield: Annual dividend divided by share price, expressed as a percentage.
DMA: Direct Market Access — placing trades directly on an exchange.
Drawdown: Peak-to-trough decline in a portfolio or investment.

E

EBITDA: Earnings before interest, tax, depreciation, and amortization.
Emergency Fund: Liquid savings covering 3–6 months of essential expenses.
EPS: Earnings Per Share — company net profit divided by outstanding shares.
Equity: Ownership interest in a company, represented by shares.
ETF: Exchange-Traded Fund — a basket of assets traded on an exchange like a stock.
Expense Ratio: Annual fee charged by a fund, as a percentage of assets.

F

FD: Fixed Deposit — a savings product with a fixed interest rate and tenure.
Federal Reserve: The central bank of the United States.
Fiat Currency: Government-issued currency not backed by a physical commodity.
Financial Statement: A formal record of financial activities (income, balance sheet, cash flow).
Fiscal Deficit: The gap between government expenditure and revenue in a year.
Forex: The foreign exchange market where currencies are traded.
Fundamental Analysis: Evaluating an investment based on financial and economic factors.
Futures: Contract obligating parties to buy/sell an asset at a set price and date.

G

GDP: Gross Domestic Product — total value of goods and services in an economy.
Growth Investing: Focus on companies expected to grow earnings faster than the market.

H

Hedge: An investment made to reduce the risk of adverse price moves in another asset.
Hedge Fund: Pooled investment vehicle using diverse strategies, usually for accredited investors.
Holding Period: Length of time an investment is held.

I

IPO: Initial Public Offering — the first sale of stock by a company to the public.
Index: A statistical measure of a group of stocks (e.g., NIFTY 50, S&P 500).
Index Fund: Mutual fund/ETF that replicates a market index.
Inflation: General rise in prices, reducing purchasing power over time.
Interest Rate: The percentage charged on borrowed money or paid on deposits.
Intrinsic Value: Perceived true value of an asset based on fundamentals.

J

Junk Bond: High-yield bond with a low credit rating and higher default risk.

L

Large Cap: Companies with a large market capitalization (typically top 100 by size).
Leverage: Using borrowed money to increase investment exposure.
Liability: A financial obligation or debt owed to others.
Liquidity: How quickly an asset can be converted to cash without loss of value.
Long Position: Owning an asset expecting its price to rise.

M

Market Cap: Total value of a company's outstanding shares.
Margin: Borrowed funds from a broker used to buy securities.
Maturity: The date when a bond's principal is repaid.
Mid Cap: Companies with medium market cap, typically ranked 101–250.
Mutual Fund: Investment vehicle pooling money from many investors into a managed portfolio.

N

NAV: Net Asset Value — per-unit value of a mutual fund.
Net Worth: Total assets minus total liabilities.
Nominal Return: Return before adjusting for inflation.
NPS: National Pension System — India's voluntary retirement savings scheme.

O

Option: Contract giving the right, not obligation, to buy/sell an asset at a set price.
Options Chain: List of all available option contracts for an underlying asset.

P

P/B Ratio: Price-to-Book — share price divided by book value per share.
P/E Ratio: Price-to-Earnings — share price divided by earnings per share.
Passive Investing: Investing to match a market index rather than beat it.
PPF: Public Provident Fund — long-term tax-saving savings scheme in India.
Preferred Stock: Shares with priority over common stock for dividends and asset claims.
Principal: The original amount borrowed or invested.
Prospectus: Legal document describing an investment offering.

Q

Quantitative Easing: Central bank policy of buying assets to inject money into the economy.

R

Rebalancing: Adjusting portfolio weights back to target allocation.
Real Return: Return after subtracting inflation.
Recession: Two consecutive quarters of negative GDP growth.
REIT: Real Estate Investment Trust — pools capital to own income-producing real estate.
Risk Tolerance: An investor's ability and willingness to withstand losses.
ROE: Return on Equity — net income divided by shareholders' equity.

S

SEBI: Securities and Exchange Board of India — India's markets regulator.
Short Selling: Selling borrowed assets hoping to buy back at a lower price.
SIP: Systematic Investment Plan — regular investing of fixed amounts.
Small Cap: Smaller companies ranked below 250 by market cap.
Spread: Difference between bid and ask price of an asset.
Stagflation: High inflation combined with stagnant economic growth.
Stock Split: Company increases share count by splitting existing shares.
STP: Systematic Transfer Plan — periodic transfer between mutual funds.
SWP: Systematic Withdrawal Plan — periodic withdrawals from a mutual fund.

T

Technical Analysis: Studying charts and price patterns to forecast future movement.
Tenor: The length of time until a bond or loan matures.
Term Insurance: Pure life insurance paying only on death within the policy term.
Treasury Bill: Short-term government debt with maturity up to one year.

U

Underwriting: Process of evaluating and pricing risk for insurance or securities.
Unit Trust: Pooled investment vehicle similar to a mutual fund.

V

Valuation: Estimating the worth of an asset or company.
Value Investing: Buying assets trading below their intrinsic value.
Volatility: Degree of variation in an asset's price over time.
Volume: Number of shares/contracts traded in a period.

Y

Yield: Income return on an investment, expressed as a percentage.
Yield Curve: Graph of bond yields across different maturities.

Z

Zero-Coupon Bond: Bond that pays no periodic interest but is issued at a discount.