Investing Glossary

Essential terms for Indian investors

Understanding financial terminology is crucial for making informed investment decisions. This glossary covers key terms used in Indian personal finance and investing.

Asset Allocation: Dividing your portfolio among asset classes (equity, debt, gold, real estate) based on goals, risk tolerance, and time horizon.
BSE (Bombay Stock Exchange): Asia's oldest stock exchange. The BSE Sensex tracks 30 large-cap stocks and is a key Indian market benchmark.
CAGR: Compound Annual Growth Rate — smoothed annual return assuming profits are reinvested. Formula: ((End/Start)^(1/Years)) − 1.
Demat Account: Dematerialized account holding shares electronically. Required for trading on NSE/BSE. Maintained by NSDL or CDSL.
Direct Plan: Mutual fund plan bought directly from AMC without distributor commission. Lower expense ratio than regular plans.
ELSS: Equity Linked Savings Scheme — tax-saving mutual fund with 3-year lock-in eligible for Section 80C deduction up to ₹1.5 lakh.
EPF: Employees Provident Fund — mandatory retirement savings for salaried employees with employer matching contribution.
Expense Ratio: Annual fee charged by mutual funds as percentage of AUM. Direct plans typically 0.5–1% lower than regular plans.
FIRE: Financial Independence, Retire Early — achieving enough corpus that investments cover living expenses without salary.
FY (Financial Year): India's financial year runs April 1 to March 31. FY 2024-25 means April 2024 to March 2025.
Index Fund: Mutual fund or ETF tracking a market index like Nifty 50. Low-cost passive investing approach.
LTCG: Long Term Capital Gains — profit on assets held beyond specified period. Equity LTCG above ₹1.25L taxed at 12.5% (FY 2024-25).
NAV: Net Asset Value — per-unit price of a mutual fund. Calculated daily based on underlying holdings.
Nifty 50: NSE index of 50 largest Indian companies by market cap. Primary benchmark for Indian equity markets.
NSE: National Stock Exchange — India's largest stock exchange by trading volume. Home to Nifty indices and F&O segment.
PPF: Public Provident Fund — 15-year government savings scheme with EEE tax status (exempt investment, interest, maturity).
Rupee Cost Averaging: Investing fixed amounts regularly regardless of market level. You buy more units when prices are low, fewer when high.
SEBI: Securities and Exchange Board of India — regulator for securities markets, mutual funds, and stock exchanges.
Sensex: BSE's benchmark index of 30 stocks. Often compared with Nifty 50 as India's two primary market indicators.
SIP: Systematic Investment Plan — fixed periodic investment in mutual funds. Most popular way Indians start equity investing.
STCG: Short Term Capital Gains — profit on assets sold before LTCG holding period. Equity STCG taxed at 20% (FY 2024-25).
SWP: Systematic Withdrawal Plan — regular redemptions from mutual fund corpus for retirement income.
Section 80C: Income tax deduction up to ₹1.5 lakh for PPF, ELSS, EPF, life insurance premium, home loan principal, etc.
XIRR: Extended Internal Rate of Return — measures returns on investments with irregular cash flows like SIP with top-ups.
AMFI: Association of Mutual Funds in India — industry body publishing NAVs, SIP data, and investor education resources.
Bank Nifty: NSE index of 12 major banking stocks. Heavily traded in F&O; more volatile than Nifty 50.
Capital Gains: Profit from selling an asset above purchase price. Taxed as STCG or LTCG depending on holding period and asset class.
Dividend Yield: Annual dividend per share divided by stock price. Expressed as percentage; varies by sector and payout policy.
Form 16: TDS certificate issued by employer showing salary and tax deducted. Required for salaried ITR filing.
GST: Goods and Services Tax — indirect tax on supply of goods and services. Freelancers register when turnover crosses threshold.
ITR: Income Tax Return — annual filing declaring income, deductions, and tax paid to the Income Tax Department.
Lot Size: Minimum quantity for F&O contracts on NSE. Set by SEBI; changes periodically by underlying.
NPS: National Pension System — voluntary retirement account with equity/debt mix and extra ₹50,000 deduction under 80CCD(1B).
REIT: Real Estate Investment Trust — company owning income-producing property, traded on NSE/BSE, distributing rental income.
RBI: Reserve Bank of India — central bank setting monetary policy, regulating banks, and issuing Sovereign Gold Bonds.
SGB: Sovereign Gold Bond — RBI-issued paper gold with 2.5% annual interest and tax-free maturity gains if held to term.
STT: Securities Transaction Tax — levy on purchase/sale of securities on Indian exchanges. Applies to equity, F&O, and mutual fund redemptions.
TDS: Tax Deducted at Source — tax withheld at payment source (salary, interest, dividends) and credited against your ITR liability.
Tracking Error: Difference between index fund returns and benchmark index returns. Lower tracking error means better replication.
ULIP: Unit Linked Insurance Plan — insurance product with investment component. High charges; usually inferior to term insurance plus separate SIP.