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Ôp Absolute Return
The return an asset achieves over a period of time This measure considers the
appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or
a mutual fund - faces over a period of time Absolute return differs from relative return in
that it is concerned only with the return of the asset, and does not compare it with any
other measure
2p Accrual bond
A bond in which no periodic coupon is paid over the life of the contract Both the
principal and interest are paid at maturity Also called zero-coupon bonds, these bonds
are sold at a discount on their par value On maturity, the holder is paid the par value of
the bond
3p Accrued interest
Interest earned but not paid since the last due date This usually applies to fixed income
securities like bonds that are purchased in the secondary market These securities usually
pay dividends after six months or a year When buyers buy bonds from the secondary
market, they pay the seller the market price of the bond, in addition to the interest that
would have accrued since the last time interest was paid on the bond Buyers collect this
interest a few months later, when the interest is distributed
4p Accumulated dividend
A dividend due, but not yet paid, to a preferred stock holder Preference share holders
have the privilege of getting dividend from the company even if the company runs losses
and is not in a position to pay dividends The dividend is not paid immediately, but is
accumulated and paid off whenever the company records profits
5p Active management
An investing strategy that seeks returns in excess of a specified benchmark Here, buying
and selling of funds or stocks is based on analysis and independent decisions The other
way of managing investments is passive investment, in which both buying and selling are
linked to the performance of an index
6p Active risk
A type of risk that a fund or managed portfolio creates as it attempts to beat the returns of
the benchmark against which it is compared In theory, to generate a higher return than
the benchmark, the manager is required to take on more risk This risk is referred to as
active risk
7p Alpha
A percentage that is a measure of the returns of a fund with its risk adjusted for Alpha is
calculated from the difference between a fund's actual and expected returns, given its
market risk level as measured by its beta It is also a measure of the value added or
deducted by the fund's manager An alpha of Ô means the fund produced a return Ô
percent higher than what its beta would predict An alpha of ±Ô means the fund produced
a return Ô percent lower
8p Amortisation
The process of fully writing off indebtedness by installments of principal over a definite
time It is an accounting procedure that companies follow to write off intangible rights or
 assets · such as goodwill, patents or copyrights · over the period of their existence For
fixed assets, the term used is depreciation Both depreciation and amortisation expenses
are subtracted from a company¶s operating revenues to calculate net income
9 p Annual report
A record published by a company after the end of each financial year giving details of its
financial condition The report, as required by law, is distributed to all shareholders,
contains a description of the company's operations, its balance sheet, income statement,
auditor's report and other relevant information An annual report is the most important
source of information about a company
Ô
pAnnualise
It is the conversion of figures mentioned for a weekly, monthly, or half-yearly basis to a
yearly basis For instance, if growth was 4 percent for the quarter January to March, it is
considered to be running at Ô6 percent on an annualised basis Annualised figures are
simply linear conversions, and hence, do not involve compounding
ÔÔ pArbitrage
A risk less investment method in which a financial instrument is bought and sold at two
different prices and in two different markets The arbitrageur, the person who engages in
arbitrage, or an arbitrage house attempts to profit by selling a security in one market and
buying at a different price in another market Since the price disparity is usually small,
large volume purchases are required to make substantial profits The more perfect and
efficient markets are, the more limited the arbitrage opportunities are likely to be
Ô2 pAsset
Any item of value owned by a person or firm that can be converted to cash; these include
stocks, accounts receivable, inventory, office equipment, house or car A firm's assets are
listed on its balance sheet, where they are set off against its liabilities Some assets like
cash, buildings and estates are tangible assets and some like goodwill and copyrights are
intangible assets Companies are required to carry assets in their balance sheets at cost
less depreciation For banks, most assets are in the form of loans, while deposits are
liabilities
Ô3 pAsset allocation
The process of dividing a portfolio among major asset categories such as bonds, stocks or
cash The purpose of asset allocation is to reduce risk by diversifying the portfolio
Ô4 pAsset management company (AMC)
³ Asset Management Company ´ means a company formed and registered under the
Companies Act, Ô956 (Ô of Ô956) and approved as such by the Board under subregulation
(2) of regulation 2Ô The AMC is a company, floated by the sponsor, is responsible for
managing the funds mobilized under the mutual fund
Ô5 pAssets under management
The total market value of assets owned by a mutual fund The asset level depends on the
market valuation and the money held by the mutual fund
Ô6 pAverage annual yield
Sum of each year's return on investment, divided by the number of years invested
Ô7 pBack-end Load
Also known as exit load, it is a fee that investors pay when selling mutual funds within a
certain number of years The fee is a shown as a percentage and usually decreases yearly
when it drops to zero
Ô8 pBalance sheet
It is a summary of a company¶s assets and liabilities The balance sheet is attached to the
annual report of the company and is given to all share holders These statements are
audited
Ô9 pBalanced fund
A mutual fund that invests its assets into the money market, bonds and equity so as to
provide both growth and income
2
pBasis point
A unit that is equal to ÔÔ

th of Ô percent, and is used to denote the change in a financial
instrument The basis point is commonly used for calculating changes in interest rates,
equity indexes and the yield of a fixed-income security
2Ô pBear market
A prolonged period of falling prices, accompanied by widespread pessimism In the stock
market a bear is an investor who believes that the markets or a particular stock is going to
fall and thus sells the shares with a hope of buying them back as and when the market
falls
22 pBeta
It is a measure of a security¶s risk Each security has a certain amount of risk attached to
it Beta tries to measure the risk involved with each security Investor should choose a
security which gives the highest return for a given risk level
23 pBlue chip
A very high security stock The stock of a large company with a strong record of stable
earnings andor dividend growth and a reputation for high quality management andor
products
24 pBond
A debt instrument issued for a period of more than one year with the purpose of raising
capital by borrowing Bond is a promise to pay the principal along with the interest after
a specified period of time
25 pBonus share
Extra shares given by a company to its share holders Bonus shares are a kind of reward
to share holders Bonus shares are given on a pro-rata basis to the current share holders of
the company
26 pBook Value
It is the historical cost of assets less liabilities Book value often differs substantially from
market price
27 pCall money
Money which is loaned, in the call market, which can be demanded for repayment on
call
28 pCertificate of deposit
Short- or medium-term, interest-bearing, debt instrument offered by banks and financial
institutions (FIs) It is a negotiable instrument and can be sold at a discount at short notice
to raise cash
29 pClosed-end fund
A mutual fund scheme which is open for a fixed period and sells off its assets at the end
of the period and distributes the money thus obtained among unit holders These units
may be bought and sold in the secondary market
3
pCurrent yield
It is the ratio of the interest being received to the market price of the security
3Ô pebentures
They are bonds issued by a company to raise capital There are various kinds of
debentures: secured or unsecured, convertible or non convertible
32 pebtequity ratio
The ratio is determined by dividing long-term debt by common stockholder equity It is
one of the most useful financial ratios Creditors use it to see whether it is safe to lend
money to the particular company The ratio should ideally be around 2 times
33 peep iscount Bond
A long-term debt instrument selling at a high discount of its face value
34 pefault Risk
The risk that companies or individuals will be unable to pay the contractual interest or
principal on their debt obligations
35 pefensive Stock
A stock that provides a constant dividend and stable earnings, regardless of the state of
the overall stock market
36 perivative
An instrument that derives its value from an underlying asset: index futures and options,
for instance, are called derivative instruments
37 piscount bond
ebt instruments sold for less than their par value
38 piversification
Investing in a variety of companies and sectors so as to spread risk
39 piversified Fund
A type of investment fund that contains a wide array of securities and is adequately
diversified A mutual fund classified as a diversified fund actively maintains a high level
of diversification in its holdings; the fund is thus able to reduce risks, because events that
affect one sector are unlikely to have the same effect on other sectors For example, the
fund may restrict its purchases so it is not dominated by companies from one industry or
representing one market capitalisation size
4
pividend
istribution of a portion of a company's earnings, as decided by the board of directors, to
a class of its shareholders It can also be quoted in terms of a percent of the current
market price, referred to as dividend yield
4Ô pividend Adjusted Return
A stock's return, calculated using not only the stock's capital appreciation, but also all
dividends paid to share holders This adjustment provides investors with a more accurate
evaluation of the return received over a specified holding period
42 pownside Risk
An estimation of a security's potential to suffer a decline in price if market conditions
turn bad
43 pEarnings growth
The rate at which the earnings per share of the company are growing
44 pEarnings per Share ± EPS
The portion of a company's profits, allocated to each outstanding share of common stock
EPS serves as an indicator of a company's profitability and is calculated as,
45 pEPS = Net income - dividends on preferred stockAverage outstanding shares
46 pEffective Annual Interest Rate
An investment's annual rate of interest when compounding occurs more often than once a
year
47 pEffective Yield
The yield of a bond, assuming that investors reinvest the coupon (interest payments) on
receiving the payment
48 pEquity Linked Savings Scheme-ELSS
A mutual fund scheme that offer tax rebates to investors under specific provisions of the
Income Tax Act These schemes are growth oriented and invest pre-dominantly in equity
Their growth opportunities and risks are like those of any equity-oriented scheme
49 pEx-ividend
A stock trades ex-dividend on or after the ex-dividend date (ex-date) Ex-ate is the date
on or after which a security is traded without a previously declared dividend or
distribution
5
pExchange-Traded Fund ± ETF
A mutual fund that tracks an index, a commodity or basket of assets like an index fund,
but trades like a stock on an exchange, thus experiencing price changes throughout the
day as it is bought and sold
5Ô pFace Value
The nominal value of a security stated by the issuer For stocks, it is the original cost of
the stock shown on the certificate For bonds, it is the amount paid to the holder at
maturity It is also known as par value
52 pFund inception date
The date at which the fund is officially registered with SEBI
53 pFund manager
A person who manages a mutual fund scheme
54 pFundamental Analysis
A method of evaluating a security by measuring its intrinsic value by examining related
economic, financial and other qualitative and quantitative factors Fundamental analysts
attempt to study everything that can affect the security's value, including macroeconomic
factors (like the overall economy and industry conditions) and individually specific
factors (like the financial condition and management of companies)
55 pFund of Funds
A mutual fund that invests in other mutual funds This method is also known as multi-
management
56 pilts
These are risk-free bonds issued by the government and are safe investment options
57 plobal Fund
A mutual fund that can invest in companies located anywhere in the world, including in
its own country
58 prowth fund
A diversified portfolio of stocks that has capital appreciation as its primary goal, and
 thereby invests in companies that reinvest their earnings in expansion, acquisitions,
andor research and development
59 pHedging
A strategy designed to reduce investment risk Hedging techniques use call options, put
options, short selling, or futures contracts A hedge can help lock in existing profits Its
purpose is to reduce the volatility of a portfolio, by reducing the risk of loss
6
pHedge fund
An aggressively managed portfolio of investments that uses advanced investment
strategies such as leverage, long, short and derivative positions in both domestic and
international markets with the goal of generating high returns (either in an absolute sense
or over a specified market benchmark)
6Ô pHolding period
The duration of time for which an individual holds a security
62 pInception date
The date at which a mutual fund scheme opens
63 pIncome fund
A mutual fund that seeks to provide stable current income by investing in securities that
pays interest or dividends
64 pIndex fund
A portfolio of investments that is weighted the same as a stock-exchange index in order
to mirror its performance
65 pInflation
The rate at which the general level of prices for goods and services is rising
66 pIndicated Yield
The yield that a share of stock would return based on its current indicated dividend It is
calculated by dividing the indicated dividend by the current share price It is usually
quoted as a percentage
67 pInitial public offering ±IPO
A company's first sale of stock to the public
68 pIntrinsic Value
The actual value of a company or an asset based on an underlying perception of its true
value including all aspects of the business, in terms of both tangible and intangible
factors This value may or may not be the same as the current market value
69 pLeverage
Use of debt to finance operations
7
pLiabilities
A financial obligation, or the cash outlay that must be made at a specific time to satisfy
the contractual terms of such an obligation
7Ô pLiquidity
Easy conversion of an asset into cash A market is liquid when it has a high level of
trading activity, allowing buying and selling with minimum price disturbance
72 pLoad
A fee or commission charged to an investor when buying or redeeming shares in a mutual
fund The fee may be charged at the time the investor buys into the mutual fund (called a
front-end load) or when the investor redeems hisher mutual fund shares (called a back-
end load)
73 pManagement Fee
A charge levied by an investment manager for managing an investment fund The
management fee is intended to compensate the managers for their time and expertise
74 pMoney Market Fund
A mutual fund that invests in short-term debt instruments The fund's objective is to earn
interest for shareholders while maintaining a net asset value of Rs Ô
per share
75 pMutual fund
Mutual fund is a mechanism for pooling resources by issuing units to investors and
investing funds in securities in accordance with objectives as disclosed in the offer
document
76 pNet asset value -NAV
For mutual funds, NAV is the total value of the fund's portfolio, less liabilities The NAV
is usually calculated on a daily basis It is the rate at which a mutual fund unit is bought
or sold The net asset value per share usually represents the fund's market price, subject to
a possible sales or redemption charge
77 pNominal Interest Rate
The interest rate unadjusted for inflation
78 pOffer ocument (O)
·Offer ocument· means any document by which a mutual fund invites public for
subscription of units of a scheme It is a legal document that provides information about a
specific mutual fund Such information includes the fund¶s investment objectives, load
structure, and subscription and redemption policies Its purpose is to inform investors of
potential risks involved before they invest in a fund, and provides other information that
could help investors decide whether the investment is appropriate for them An abridged
offer document of the scheme also accompanies the application form
79 pOpen-Ended Fund
An open-ended fund or scheme is one that is available for subscription and repurchase on
a continuous basis These schemes do not have a fixed maturity period Investors can
conveniently buy and sell units at net asset value (NAV) related prices which are declared
on a daily basis
8
pPassive Management
An investing strategy that mirrors a market index and does not attempt to beat the market
It is also known as passive strategy or passive investing
8Ô pRate of Return
The gain or loss of an investment over a specified period, expressed as a percentage
increase over the initial investment cost ains on investments are considered to be any
income received from the security, plus the realised capital gains
82 pReal interest rate
The rate of interest excluding the effect of inflation
83 pRebalancing
The process of realigning the weightage for one's portfolio of assets
84 pRecord ate
The date established by an issuer of a security to determine the holders entitled to
receiving a dividend or distribution
85 pcash
Cashing in on units by selling them back to the mutual fund
86 pRegistrar or Transfer Agent
The institution that maintains a registry of unit holders of a fund and their unit ownership
Normally, the registrar also distributes dividends and provides periodic statements to unit
holders
87 pReinvestment Rate
The rate at which cash flows from fixed-income securities may be reinvested
88 pRelative Return
The return that an asset achieves over a period of time compared to a benchmark The
relative return is the difference between the absolute return achieved by the asset and the
return achieved by the benchmark
89 pRisk-Adjusted Return
A measure of how much risk a fund or portfolio takes on to earn its returns This is often
represented by the Sharpe ratio The greater the returns per unit of risk, the better it is for
the fund or portfolio
9
pRisk-Free Rate of Return
The theoretical rate of return of an investment with zero risk The risk-free rate represents
the interest an investor would expect from an absolutely risk-free investment over a
specified period of time
9Ô pRisk tolerance
The willingness of an investor to tolerate the risk of losing money for the potential to
make money
92 pRupee-cost Averaging
It is an investment strategy based on investing equal amounts in a fund at regular
intervals As a result, investors can buy more units when the price is low and fewer units
when the price is high, thus ensuring that the average costs per unit are low over time
93 pSales charge
A charge added on to the price of a mutual fund when an investor buys it
94 pSale price
The price at which a fund offers to sell one unit of its scheme to investors This NAV is
grossed up with the entry load applicable, if any
95 pSector Fund
A mutual fund that makes investments solely in businesses that operate in a particular
industry or sector of the economy
96 pSharpe Ratio
It measures risk-adjusted performance It is calculated by subtracting the risk-free rate
from the rate of return for a portfolio and dividing the result by the standard deviation of
the portfolio returns
97 pStandard eviation
It describes how much the return on the fund has been deviating from the expected
normal returns
98 pSwitching
The movement of investments from one scheme to another usually within the family of
schemes An investor may switch schemes because of market conditions
99 pSystematic Investment Plan -SIP
It allows an investor to periodically invest in units by issuing post-dated cheques
Investors, thus benefit from rupee cost averaging
Ô

p Systematic Risk
The risk inherent in the entire market It is also known as market risk
Ô
Ô p Systematic Withdrawal Plan ± SWP
A service offered by a mutual fund that provides a payout to the shareholder at
predetermined intervals
Ô
2 p Systematic Transfer Plan -STP
A plan that allows the investor to provide a mandate to the fund to periodically and
systematically transfer a certain amount from one scheme to another
Ô
3 p Top-own Investing
The top-down style of investment management places primary importance on country or
regional allocation Top-down managers generally focus on global economic and political
trends in selecting the countries or regions where they expect to find investment
opportunities Only then do they employ a more fundamental analysis of individual
stocks in order to make their final selections
Ô
4 p Total Return
Total return includes interest, capital gains, dividends and distributions realised over a
given period of time
Ô
5 p Tracking Error
The divergence between the price behaviour of a position or portfolio and the price
behaviour of a benchmark primarily used to assess the performance of an index fund
Ô
6 p Trailing EPS
The sum of a company's earnings per share for the previous four quarters
Ô
7 p Transaction Costs
Costs incurred when buying or selling securities These include brokers' commissions and
spreads
Ô
8 p Transfer Agent
A corporation that maintains records of investors, account balances and transactions,
cancels and issues certificates, process investor mailings and deals with associated
problems (such as lost or stolen certificates)
Ô
9 p Treynor Ratio
It measures returns earned in excess of that which could have been earned on a riskless
investment per unit of market risk
ÔÔ
p The Treynor ratio is calculated as:
(Average return of the portfolio - average return of the risk-free rate)  Beta of the
portfolio
ÔÔÔ p Trustees
·Trustees· mean the Board of Trustees or the Trustee Company who hold the property
of the Mutual Fund in trust for the benefit of the unitholders
ÔÔ2 p Unit
The interest of investors in either of the schemes, which consists of each unit representing
one undivided share in the assets of the schemes
ÔÔ3 p Unitholder
·Unitholder· means a person holding unit in a scheme of a mutual fund
ÔÔ4 p Unsystematic Risk
The risk that is firm-specific; this include losses in the company due to bad management,
or fire
 ÔÔ5 p Value Investing
The strategy of selecting stocks that trade for less than their intrinsic value Value
investors actively seek stocks of companies that they believe the market has undervalued
They believe the market overreacts to good and bad news, causing stock price
movements that do not correspond with the company's long-term fundamentals The
result is an opportunity for value investors to profit by buying when the price is deflated
ÔÔ6 p Value Fund
A mutual fund that primarily holds value stocks, stocks deemed to be undervalued in
price
ÔÔ7 p Variance
Variance measures the variability (volatility) from an average This statistic helps
determine the risks an investor may take on when purchasing a specific security
ÔÔ8 p Volatility
It is a statistical measure of the dispersion of returns for a given security or market index
Volatility can either be measured by using the standard deviation or variance between
returns from that same security or market index The greater the volatility, the riskier the
security is likely to be
ÔÔ9 p Weighted Average
An average in which each quantity to be averaged is assigned a weight The weightings
determine the relative importance of each quantity on the average
Ô2
p Yield
Yield is the annual rate of return for any investment and is expressed as a percentage For
stocks, yield can refer to the rate of income generated from a stock in the form of regular
dividends In the case of bonds, yield is the effective rate of interest paid on a bond,
calculated by the coupon rate divided by the bond's market price:
Ô2Ô p Yield Curve
A graph depicting yield, vis-a-vis maturity There are three main types of yield curve
shapes: normal, inverted and flat (or humped) A normal yield curve is one in which
longer maturity bonds have a higher yield compared to shorter-term bonds due to the
risks associated with time An inverted yield curve is one in which the shorter-term yields
are higher than the longer-term yields, which can be a sign of imminent recession A flat
(or humped) yield curve is one in which the shorter- and longer-term yields are close to
each other, indicating the likelihood of an economic transition
Ô22 p Yield To Maturity ± YTM
The rate of return anticipated on a bond if it is held until the maturity date YTM is
considered a long-term bond yield, expressed as an annual rate The calculation of YTM
takes into account the current market price, par value, coupon interest rate and time to
maturity It is also assumed that all coupons are reinvested at the same rate
Ô23 p ero-Coupon Bond
A debt security that does not pay interest (a coupon) but is traded at a deep discount,
rendering profit at maturity when the bond is redeemed for its full face value