Asking price
The lowest price at which someone is willing to sell a security. Also known as Offer.
Asset Management Company (AMC)
The trustee delegates the task of floating schemes and managing the collected money to a company of professionals, usually experts who are known for smart stock picks. This is an asset management company (AMC). AMC charges a fee for the services it renders to the MF trust. Thus the AMC acts as the investment manager of the trust under the broad supervision and direction of the trustees. The AMC must have a net worth of at least Rs10 crores at all times and it can not act as a trustee of any other mutual fund.
Annualized Returns
Absolute returns over a period (which could be larger or smaller than a year) aggregated to a period of one year.
Automatic Investment Plan
Periodic investment of a fixed amount by a unitholder, either directly from his bank account or by issuing post-dated cheques, in his mutual fund account.
Automatic Withdrawal Plan
It allows an investor to receive periodic payments of fixed amounts or units from his investment in a mutual fund scheme. Retirees who want a regular income supplement often choose this.
Badla
Carry Forward Trading. It is the process of postponement of the payment by an investor for the purchase of securities from one Settlement to another by paying a charge is called Carry Forward trading.
BID
The highest price at which someone is willing to buy a security.
Bonus shares
Bonus shares are the shares given to shareholders free of cost.
Book building
The process of securing the optimum price for a company's share. The issuing company decides the price of the security by asking investors how many shares and at what price they would be interested in.
Book runner
The institution that arranges and manages the book-building process for the new public issue.
Book value
It is the value at which an asset is carried on a balance sheet. The book value of a share is obtained by dividing the equity reserves of the company by the number of shares issued.
Brokerage
Brokerage is the commission charged by a broker. The maximum brokerage chargeable, as stipulated by SEBI is at present 2.5% of the trade value.
Buy-back
The repurchase by a company of its own stock or bonds.
Balanced funds
A mutual fund scheme with an investment objective of both long-term growth and income, through investment in stocks and bonds. Generally, 60% is invested in stocks and 40% in bonds, in order to obtain the highest returns consistent with a low-risk strategy.
Benchmark
A standard used for comparison. Usually to provide a point of reference for evaluating a fund's performance. The common benchmarks for equity-oriented funds are the BSE 200 index or the BSE Sensex.
Blue chip
The stock of a nationally known company that has a long record of profit, growth, and dividend payment, and a reputation for quality management, products, and services.
Bonds
Debt security or IOU issued by a government entity or corporation, which generally pays a stated rate of interest, and plans to return the principal amount of the loan on the maturity date. Unlike stockholders, bondholders do not have corporate ownership privileges.
Broker
A broker is a licensed person authorized to receive commissions. Brokers are always affiliated with a brokerage company or broker-dealer network. He is basically a salesman who sells stocks, bonds, or mutual funds.
Bull market
A distinctive time period, during which the prices of securities are rising, usually characterized by high trading volumes.
Bear market
A bear market refers to a continuous phase of declining share prices. Bear markets are characterized by overall pessimism as market participants expect prices to decline in the future.
Call Option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instruments at a specified price within a specific time period.
Capital market
Markets where the capital funds-debt and equity are traded. Included are private placement sources of debt and equity as well as organized markets and exchanges.
Closing price
The trade price of a security at the end of a trading day. Based on the closing price of the security, the base price at the beginning of the next trading day is calculated.
Common stock
A stock with a fixed dividend that is paid before preferred stock dividends. Generally, the preferred dividend is higher than the common stock dividend.
Cum dividend
The shares that are traded on dividend containing basis are called Cum dividend shares. The Ex-dividend shares become the Cum dividend, immediately after the company declares a dividend.
Convertible bonds
Bonds that can be exchanged at the option of the holder for preference shares or equity shares at a pre-decided price.
Current yield
Dividend or interest received calculated as a percentage of a share's or debenture's current market price.
Corpus
The total amount of money invested by all the investors in a scheme.
Custodian
The keeper of a fund's securities and other assets.
Certificate of Deposit (CD)
A short-term debt instrument issued by scheduled commercial banks excluding regional rural banks. They are unsecured instruments that mature between three months to one year.
Closed-end scheme/fund
A type of fund that has a fixed number of shares usually listed on a major stock exchange. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis. Price is determined by supply and demand.
Closing price
The price of security after the final trade at the end of the day.
Commercial paper
They are short-term unsecured instruments issued by a company that needs to raise money and is willing to pay an interest rate. These are included in portfolios of some mutual funds. Such instruments have maturities ranging from 3 months to 1 year.
Coupon Rate
The interest rate that the issuer of a bond agrees to pay the bond-holder until maturity of the bond
Credit rating
A measure indicating the bond issuer's creditworthiness, or his/ her ability to repay the loan. The bonds are rated by an independent rating agency such as CRISIL, ICRA, and CARE.
Commodity
A commodity is a product that trades on a commodity exchange. Examples of these are food, metal or another physical substance that investors buy and sell which also includes foreign currencies and financial instruments and indices, Oil and gold are two of the most commonly traded commodities, but markets exist for cotton, wheat, sugar, cattle, pork bellies, lumber, silver, and other precious metals.
Demat trading
Demat trading is trading of shares that are in the electronic form or dematerialized shares. Dematerialization is the process by which shares in the electronic form are canceled and credit in the form of electronic balances is maintained on highly secure systems at the depository.
Debentures
Instruments of debt, usually unsecured. They are also usually credit rated.
Derivative
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes. Most derivatives are characterized by high leverage.
Dividend
A portion of profits that a company or a mutual fund distributes to its shareholders or unitholders.
Dividend Reinvestment
In a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Hence instead of receiving dividends, the unit holders receive units. Thus the number of units allotted under the dividend reinvestment plan would be the dividend declared divided by the ex-dividend NAV.
Dividend Warrant
An instrument issued by companies/ mutual funds to an investor for the purpose of payment of dividends
Diversification
The investment strategy which spreads investments among securities in different industries, with different risk levels, and in different companies, potentially lowering risk by reducing the impact of any one security. Mutual funds are the best method of diversification because their portfolios consist of a variety of securities unless otherwise noted. Mutual funds are a diversified investment by nature.
Entry load
The load on purchases after the Initial (Public) Offer.
Equity
A type of security representing part ownership in a company/ corporation. Common stocks, preferred stock, and convertible stock are types of equity securities, but debt securities are not, as they do not represent ownership.
Exit load
The load on redemption other than the Contingent Deferred Sales Charge (CDSC) permitted under SEBI Regulations. A fee charged by some funds for redeeming or buying back fund shares. The amount sometimes depends on how long the investment was held, so the longer the time period, the smaller the charge.
Ex-Dividend Date
The date following the record date for a scheme. When a fund's net asset value reduces by an amount equal to dividend distribution.
Face Value
The original issue price of one unit of a scheme
IPO
The first sale of stock by a private company or unlisted company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Lock-In Period
The period after investment in fresh units during which the investor cannot redeem the units.
Money market funds
A mutual fund that invests in short-term government securities, certificates of deposit, and other highly liquid securities such as T- bills and short-term commercial paper, and generally pays money market rates of interest. An investment in a money market fund is neither insured nor guaranteed by the government or by any other entity or institution, so there is no assurance that the share price will be maintained.
Mutual fund
A Mutual Fund is a common pool of money from numerous investors who wish to save money. Each fund's investments are chosen and monitored by qualified professionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds, money market instruments, or a combination of those. Mutual funds offer investors the advantages of diversification, professional management, affordability, liquidity, and convenience.
Net Asset Value
The market value of one share of a mutual fund on a given day; also known as the bid price. Unlike the public offering price, the NAV includes no sales charges. The NAV is calculated each day by taking the closing market value of all securities owned by a mutual fund, plus all other assets (e.g. cash), and deducting the fund's liabilities. This sum is then divided by the fund's total number of shares outstanding.
Put Option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
Portfolio
A pool of individual investments owned by an investor or mutual fund. Portfolios may include a combination of stocks, bonds, and money market instruments. A list of the fund's current portfolio will usually be contained in a mutual fund's annual report.
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.
Options
Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price. An option can be a 'call' option or a 'put' option.
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