Understand key financial terms

It measures the performance of an investment compared to a benchmark index. The benchmark could be a stock market index like Nifty 50, Sensex, or an international index like S&P 500, depending on where the investment is made. A positive alpha means the investment has performed better than the benchmark, while a negative alpha means it has underperformed.

A resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

It is the total value of all the investments managed by a mutual fund or financial institution

It is a standard or reference point against which the performance of an investment is measured. It is used to evaluate the performance of an investment compared to a benchmark index. The benchmark could be a stock market index like Nifty 50, Sensex, or an international index like S&P 500, depending on where the investment is made.

It measures how much a stock's price moves compared to the market as a whole. A beta of 1 means the stock moves exactly with the market. A beta greater than 1 means it moves more than the market, and less than 1 means it moves less. It helps investors understand how risky a stock is compared to the overall market.

It is when a large number of shares are bought or sold in a single transaction. In India, it usually means buying/selling at least 5 lakh shares or shares worth Rs 5 crore or more. They are mostly used by big investors like mutual funds, banks, or foreign investors to buy or sell large chunks of shares quickly. Block deals are done in a special trading window on the stock exchange to prevent sudden ups and downs in the market. Block deals are different from bulk deals. While they both involve large trades, a bulk deal happens during normal market hours. It is generally when an investor buys/sells at least 0.5% of a company's listed shares.

It is when a large number of shares are bought or sold in a single transaction. In India, it usually means buying/selling at least 5 lakh shares or shares worth Rs 5 crore or more. They are mostly used by big investors like mutual funds, banks, or foreign investors to buy or sell large chunks of shares quickly. Block deals are done in a special trading window on the stock exchange to prevent sudden ups and downs in the market. Block deals are different from bulk deals. While they both involve large trades, a bulk deal happens during normal market hours. It is generally when an investor buys/sells at least 0.5% of a company's listed shares.

It shows how much capital a bank has to cover possible losses from its loans or investments. It is a metric of a bank's financial health. For this, a bank's capital is compared to its risk weighted assets — meaning their loans or investments, adjusted for risks. In India, the RBI mandates that all scheduled commercial banks maintain a CAR of at least 9%. Within this, public sector banks must maintain 12%. This is decided to ensure that banks do not take excessive risks and remain financially safe. A higher CAR means a bank is comparatively safer and will be able to handle financial shocks.

It is a tax on the profit made from selling an investment. It is calculated by multiplying the profit by the capital gains tax rate.

It shows how long it takes a company to turn its investments into cash. It measures the time from buying materials, making products, selling them, to collecting money from customers. The time taken is measured in days. A shorter cycle means the company gets cash back faster, which shows it is running efficiently.

It is a measure of inflation. It tracks the changes in prices of a fixed number of goods and services over time. This is representative of the demand in the economy. It includes essentials like food, clothing, housing as well as transportation, electricity, healthcare, etc. CPI reflects the change in cost of living and purchasing power. When CPI rises, inflation is rising; when CPI falls, inflation is reducing

It is a score that indicates how reliable you are in paying back a loan on time. A credit rating agency gives a 3-digit score to a person or company that borrows money. It measures your creditworthiness, i.e. how worthy you are of receiving credit. The score is calculated considering various factors like repayment histories across different debts, number of outstanding loans, credit balance, etc. The higher your credit score, the higher are your chances of getting a favourable interest rate on a loan from banks.

A number representing the creditworthiness of a person. In India, CIBIL is the most common score.

It is when the government or an organization sells its stake in a business. This is done through liquidating assets, or selling shares or a subsidiary. Disinvestment can be partial or full, depending on how much stake is sold. Governments disinvest to reduce debt, raise funds, and encourage private sector participation.

A risk management strategy that mixes a wide variety of investments within a portfolio.

It is the percentage of the company's earnings that is paid out as dividends to shareholders. It is calculated by dividing the annual dividend per share by the earnings per share. A higher dividend payout ratio means the company is paying out more money to its shareholders.

It is the amount of money a company pays out to its shareholders as a percentage of the share price. It is calculated by dividing the annual dividend per share by the share price. A higher dividend yield means the investment is paying out more money to its shareholders.

It is the amount of profit a company makes for each share of its stock. It is calculated by dividing the company's net profit by the number of shares outstanding. A higher EPS means the company is making more profit for each share. It is calculated by dividing the company's net profit by the number of shares outstanding. A higher EPS means the company is making more profit for each share.

Represents the value that would be returned to a company's shareholders if all assets were liquidated and all debts were paid off.

It is the percentage of the fund's assets that are used to pay for the fund's expenses. It is calculated by dividing the fund's expenses by the fund's assets. A higher expense ratio means the fund is more expensive to operate.

It is the money that a company has left after paying for daily operations and investments A positive FCF indicates that the company is generating more cash than it needs to operate and grow, which is a healthy sign. Companies can use this leftover cash to pay dividends to shareholders, reduce debt, buy back shares, or reinvest for future growth.

It is when a company issues new shares to raise money from the publicThe funds raised go directly to the company for its own use, unlike an offer-for-sale, where the existing shareholders sell their shares and receive the money. Fresh issues are usually part of the IPO or the FPO process. Money can be used by the company for expansion, debt repayment, or any other business needs.

It is the total value of all goods and services produced within a country's borders in a given period. It is a key indicator of a country's economic health and growth. GDP is calculated by adding up the value of all goods and services produced in the country. It is a measure of the total economic activity in a country.

It is the total income earned by a country's citizens and businesses, regardless of their location. It is a measure of the total economic activity of a country.

It is the total value of all goods and services produced by a country's citizens and businesses, regardless of their location. It is a measure of the total economic activity of a country.

It is a strategy used to protect your investments against risks

It is a tax on the income of an individual or a company. It is calculated by multiplying the income by the income tax rate.

The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

A financial obligation of an individual, company, or government that results in an outflow of economic benefits to others.

It means how easily an investment can be bought or sold in the market. A more liquid investment can be bought or sold quickly and without affecting the price. It is calculated by measuring the volume of trades in the investment over a period of time. A higher liquidity means the investment is more liquid.

It is a tax on the profit made from selling an investment after a year. It is calculated by multiplying the profit by the long-term capital gains tax rate.

A professionally managed investment fund that pools money from many investors to purchase securities.

It is the value of a mutual fund's assets minus its liabilities, divided by the number of outstanding shares. It is calculated by dividing the total assets of the fund by the number of outstanding shares. A higher NAV means the fund is more valuable.

A government-backed small savings scheme in India that offers tax benefits and fixed returns, often used for retirement planning.

It compares a company's market value to its book value.The market value is what investors are willing to pay for the company's shares, while the book value is the value of the company's assets minus its liabilities, as recorded in its financial statements.Like the P/E ratio, investors use the P/B ratio to see if a stock is overvalued or undervalued compared to its actual net assets.P/B Ratio = Market Price per Share/ Book Value per ShareThe P/B ratio becomes useful for capital-intensive industries like banking, insurance, real estate, and utilities, where tangible assets make up a large part of the business.Example: for the banking industry, the P/B ratio is more relevant than the P/E ratio.This is because it shows how the market values the bank's assets (loans and investments).These matter more than the profits, because profits can fluctuate.

It is a measure of how much investors are willing to pay for each rupee of a company's earnings. A higher P/E ratio means investors are willing to pay more for each rupee of earnings. It is calculated by dividing the market price per share by the earnings per share. A higher P/E ratio means investors are willing to pay more for each rupee of earnings. It is calculated by dividing the market price per share by the earnings per share.

It is the percentage of shares of a company held by its promoters. Promoters can include the founding members, the parent company or insiders with significant control in the company. A high promoter holding usually signals strong confidence in the company.

It is a measure of the performance of an investment compared to the risk taken to achieve that performance. It is calculated by dividing the return of the investment by the risk of the investment. A higher risk-adjusted return means the investment is more profitable.

It is a tax on the profit made from selling an investment within a year. It is calculated by multiplying the profit by the short-term capital gains tax rate.

An investment strategy where one invests a fixed amount of money regularly (e.g., monthly) in mutual funds, popular in the Indian context.

It is the money borrowed by the government of a country.

It is a separate company set up by a parent company for a specific project It has its own assets and liabilities, separate from the parent company. SPVs help in isolating the risk. So even if the project faces losses or problems, the parent company remains protected. SPVs are often used for big projects like building roads, real estate, or helping startups raise money. Investors can also put money directly into an SPV, raising funds for just that project

It is a way to collect tax directly from the source of income When you receive income like salary, bank interest, etc., the payer deducts a fixed percentage before giving it to you. This deducted amount is deposited with the government as your tax. The rate of TDS depends on the type of payment. Later, when you file your Income Tax Return (ITR), the TDS is adjusted against your total tax. If extra tax was deducted, you can claim a refund.

It measures how much the price of an investment fluctuates over time. A higher volatility means the price of the investment can change a lot in a short period of time. It is calculated by measuring the standard deviation of the investment's price over a period of time. A higher volatility means the investment is more risky.

The income return on an investment, such as the interest or dividends received from holding a security.