Financial Glossary

Association of Mutual Funds in India — the industry body of SEBI-registered mutual fund companies that promotes ethical, professional standards among mutual fund distributors and educates investors.

The total market value of all assets (securities) managed by a mutual fund, portfolio manager, or investment adviser on behalf of investors at a given point in time.

Alpha is the excess return of an investment relative to the return of a benchmark, after adjusting for risk.

A simultaneous purchase and sale of the same (or equivalent) asset in different markets to profit from a price discrepancy, with zero or minimal risk.

A basis point is one-hundredth of a percentage point (0.01%) — the standard unit for expressing changes in interest rates and yields.

Beta measures a security's sensitivity to movements in the overall market — its systematic (non-diversifiable) risk.

The CASA ratio is the share of a bank's total deposits held in low-cost Current and Savings Accounts.

CAR (or CRAR) measures a bank's capital as a percentage of its risk-weighted assets — its cushion to absorb losses.

CAPM estimates the expected return of an asset based on its systematic risk (beta) relative to the market.

CRR is the percentage of a bank's deposits it must hold as cash reserves with the RBI, earning no interest.

Convexity measures how a bond's duration itself changes as interest rates change — the curvature of the price–yield relationship.

An assessment by a rating agency (CRISIL, ICRA, CARE, Brickwork) of the creditworthiness of a debt issuer — their ability and willingness to repay debt obligations on time.

A credit spread is the extra yield a bond pays over a risk-free government bond to compensate for its default risk.

A dematerialised account that holds shares and other securities in electronic form — eliminating physical share certificates. Held with NSDL or CDSL through a depository participant (DP).

DCF values an asset by projecting its future cash flows and discounting them to today using a required rate of return.

Duration measures a bond's price sensitivity to interest-rate changes, expressed in years.

Earnings Before Interest, Taxes, Depreciation, and Amortisation — a widely used proxy for operating cash generation, useful for comparing companies across capital structures.

The efficient frontier is the set of portfolios offering the highest expected return for each level of risk.

The annual percentage of a mutual fund's average AUM charged to cover management fees, administrative costs, and other operational expenses — directly reducing investor returns.

A private, non-standardised agreement to buy or sell an asset at a specified price on a future date — traded OTC (not on an exchange), with counterparty risk.

Free cash flow is the cash a company generates after covering operating expenses and capital expenditure — the cash available to investors.

A standardised, exchange-traded agreement to buy or sell a specific underlying asset at a predetermined price (futures price) on a specified future date (expiry date).

A debt mutual fund that invests exclusively in government securities (G-Secs) issued by the Central or State governments — zero credit risk but high interest rate (duration) risk.

The first sale of shares by a private company to the public, enabling the company to raise capital from retail and institutional investors and list on a stock exchange.

Trading in securities of a listed company using Unpublished Price Sensitive Information (UPSI) — illegal under SEBI (Prohibition of Insider Trading) Regulations, 2015.

IRR is the discount rate at which a project's NPV equals zero — effectively its annualised expected rate of return.

LCR requires banks to hold enough high-quality liquid assets to survive a 30-day period of severe cash outflows.

MCLR is the minimum interest rate below which a bank cannot lend, based on its marginal cost of funds.

A demand by a broker for an investor to deposit additional funds to bring the margin account back to the required minimum after losses have reduced the account balance below the maintenance margin level.

The daily process of revaluing open futures positions at the day's closing settlement price, crediting gains to and debiting losses from the margin accounts of futures traders.

A pooled investment vehicle where money from multiple investors is collected and professionally managed to invest in a diversified portfolio of securities as per the fund's stated objective.

India's defined-contribution pension system regulated by PFRDA, offering tax benefits under Section 80C and 80CCD. Mandatory for central government employees, voluntary for others.

The per-unit market value of a mutual fund scheme, calculated as the total market value of the scheme's assets minus its liabilities, divided by the total number of outstanding units.

NIM measures the difference between the interest a bank earns on loans and pays on deposits, relative to its assets.

NPV is the present value of a project's cash inflows minus its initial investment — a positive NPV creates value.

India's benchmark equity index — a free-float market capitalisation-weighted index of the 50 largest and most liquid stocks listed on the National Stock Exchange (NSE).

An NPA is a loan on which the borrower has not paid interest or principal for 90 days or more.

The total number of outstanding derivative contracts (futures or options) that have not been settled, closed, or delivered — representing active positions in the market.

Sensitivity measures that quantify how an option's price changes in response to various market variables — Delta (price), Gamma (delta change), Theta (time decay), Vega (volatility), and Rho (interest rate).

A financial derivative that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) before or on a specified date (expiry), in exchange for a premium paid upfront.

PSL is the RBI requirement that banks lend a set share of credit to priority sectors like agriculture, MSMEs and weaker sections.

PCR is the percentage of bad loans (NPAs) for which a bank has already set aside provisions from its profits.

The fundamental no-arbitrage relationship between call and put option prices on the same underlying, strike, and expiry: C − P = S − PV(K).

The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities.

RLLR is a lending rate tied directly to the RBI's repo rate, so loans reprice quickly when the repo rate changes.

The reverse repo rate is the interest rate at which the RBI borrows funds from commercial banks, absorbing liquidity from the system.

SARFAESI lets banks and NBFCs seize and sell a defaulter's secured assets to recover dues without going to court.

Securities and Exchange Board of India — the statutory regulator of Indian securities markets, established under the SEBI Act 1992, with the mandate to protect investor interests, develop the securities market, and regulate market intermediaries.

SEBI Complaints Redress System — an online platform (scores.sebi.gov.in) where investors can lodge and track complaints against SEBI-registered market intermediaries.

A method of investing a fixed amount in a mutual fund scheme at regular intervals (weekly, monthly, quarterly) — enabling disciplined, rupee-cost-averaged investing over time.

Standard Portfolio Analysis of Risk — the margin methodology used by NSE/BSE for derivatives, calculating the worst-case portfolio loss over a single day for a given set of positions.

The Sharpe ratio measures risk-adjusted return — the excess return earned per unit of total risk (volatility).

Standard deviation measures how much an investment's returns vary around their average — a common proxy for total risk or volatility.

SLR is the minimum percentage of deposits a bank must maintain in liquid assets like cash, gold or approved government securities.

A statistical measure of the dispersion of returns for an asset — higher volatility means larger and more unpredictable price swings, representing higher risk.

WACC is the average rate a company pays to finance its assets, blending the cost of equity and the after-tax cost of debt.

YTM is the total annualised return an investor earns if a bond is held to maturity and all cash flows are reinvested at the same rate.