Financial Jargons

Finance loves jargon. This page translates it into plain language. Terms are grouped by topic so you can find what you need quickly.

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Mutual Fund Basics

AMC (Asset Management Company): The company that runs the mutual fund. HDFC AMC, ICICI Prudential AMC, UTI AMC, etc. They hire the fund managers and decide what to buy/sell.
NAV (Net Asset Value): The price of one unit of a mutual fund. Calculated daily. If NAV is ₹50 and you invest ₹10,000, you get 200 units.
AUM (Assets Under Management): Total money managed by a fund or AMC. A fund with ₹50,000 crore AUM means investors have collectively put that much money into it.
NFO (New Fund Offer): When an AMC launches a new mutual fund scheme. Like an IPO but for mutual funds. Usually no reason to rush into one since there's no track record to evaluate.
Expense Ratio (TER): The annual fee a mutual fund charges you for managing your money. Expressed as a percentage. A 0.5% expense ratio on ₹1 lakh means ₹500/year goes to the AMC. Lower is better.
Exit Load: A fee charged when you sell (redeem) your mutual fund units before a certain period. Typically 1% if you exit within 1 year for equity funds. After the period, it's zero.
Folio Number: Your account number with a mutual fund AMC. Like a bank account number, but for your mutual fund holdings.
Corpus: The total amount of money you've accumulated in an investment. If your SIPs over 5 years have grown to ₹8 lakh, your corpus is ₹8 lakh.
Lock-in Period: A period during which you cannot redeem your investment. ELSS has a 3-year lock-in. PPF has 15 years. Once locked, the money stays until the period ends.

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Investment Methods

SIP (Systematic Investment Plan): Investing a fixed amount at regular intervals (usually monthly). ₹5,000/month into a fund on the 5th of every month. Automates investing and averages out market ups and downs.
STP (Systematic Transfer Plan): Automatically moving money from one mutual fund to another at regular intervals. Common use: park a lump sum in a liquid fund, then STP into an equity fund over 6-12 months.
SWP (Systematic Withdrawal Plan): The reverse of SIP. You withdraw a fixed amount from your mutual fund at regular intervals. Used during retirement to create a monthly "salary" from your corpus.
Lump Sum: Investing a large amount all at once, as opposed to spreading it over time via SIP.

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Fund Categories

Equity Fund: A mutual fund that invests primarily in stocks. Higher risk, higher potential returns over long periods (7+ years).
Debt Fund: A mutual fund that invests in bonds, government securities, and fixed-income instruments. Lower risk, more stable returns. Good for short-to-medium term goals (1-3 years).
Hybrid Fund: A mutual fund that invests in both equity and debt. The mix varies: aggressive hybrid funds have 65-80% equity, conservative ones have 75-90% debt.
Index Fund: A fund that simply copies a market index (like Nifty 50) instead of trying to beat it. Lower expense ratios because no active stock-picking is needed.
ELSS (Equity Linked Savings Scheme): A type of equity mutual fund that gives you tax deduction under Section 80C (up to ₹1.5 lakh/year). Comes with a 3-year lock-in. Shortest lock-in among 80C options.
Liquid Fund: A debt fund that invests in very short-term instruments (up to 91 days). Used for parking money temporarily. Slightly better returns than a savings account, with easy withdrawal.

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Performance & Risk

CAGR (Compound Annual Growth Rate): The average annual return of an investment, accounting for compounding. If ₹1 lakh became ₹2 lakh in 5 years, the CAGR is about 14.87%. More meaningful than absolute returns for comparison.
XIRR: Your actual annualized return when you invest at different times (like monthly SIPs). Unlike CAGR, XIRR accounts for the fact that each SIP installment has a different holding period.
Compounding: Earning returns on your returns. ₹1 lakh at 12% becomes ₹1.12 lakh after year 1. In year 2, you earn 12% on ₹1.12 lakh, not just ₹1 lakh. Over decades, this snowball effect is enormous.
Benchmark: The index a fund is compared against. A large-cap fund's benchmark is usually Nifty 50. If the fund returns 14% and Nifty returned 12%, it "beat the benchmark" by 2%.
Tracking Error: How much an index fund's returns deviate from its benchmark index. Lower is better. A Nifty 50 index fund with 0.05% tracking error is doing its job well. One with 0.5% is not.
Alpha: Extra returns a fund generates above its benchmark. If Nifty gave 12% and the fund gave 15%, the alpha is 3%. Harder to sustain over long periods.
Volatility: How much a fund's value swings up and down. High volatility means big gains and big losses in short periods. Equity is more volatile than debt.
Diversification: Spreading your money across different investments so one bad pick doesn't sink everything. Don't put all your money in one stock, one sector, or one asset class.
Rebalancing: Adjusting your portfolio back to your target allocation. If you wanted 70% equity and 30% debt, but a bull run made it 85%/15%, you'd sell some equity and buy debt to get back to 70/30.
Asset Allocation: How you split your money between equity, debt, and other assets (gold, real estate). The most important investment decision you'll make. Depends on your goals and timeline.
Liquidity: How quickly you can convert an investment to cash without losing value. Savings account = very liquid. Real estate = very illiquid. Mutual funds = fairly liquid (1-3 days for redemption).

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Tax Terms

Capital Gains: Profit from selling an investment. If you bought mutual fund units for ₹1 lakh and sold for ₹1.5 lakh, your capital gain is ₹50,000.
LTCG (Long Term Capital Gains): Gains from selling equity investments held for more than 1 year. Taxed at 12.5% above the ₹1.25 lakh annual exemption.
STCG (Short Term Capital Gains): Gains from selling equity investments held for less than 1 year. Taxed at 20%. No exemption threshold.
Tax Slab: Income ranges that are taxed at different rates. The more you earn, the higher rate you pay on income above each threshold. India has slabs at 0%, 5%, 10%, 15%, 20%, and 30%.
Section 80C: A section of the Income Tax Act that lets you deduct up to ₹1.5 lakh from your taxable income. Covers ELSS, PPF, EPF, life insurance premiums, home loan principal, etc.
Section 80D: Tax deduction for health insurance premiums. Up to ₹25,000 for yourself and family, plus ₹25,000-50,000 for parents.
HRA (House Rent Allowance): A salary component that's partially tax-exempt if you're paying rent. The exempt amount depends on your salary, rent paid, and city. Only available under the old tax regime.
Indexation: Adjusting your purchase price for inflation when calculating capital gains tax. Reduces your taxable gain. Was available for debt funds until 2023, now removed for new investments.
Real Returns: Your investment return minus inflation. If your FD gives 7% and inflation is 6%, your real return is only 1%. Your money grew, but its purchasing power barely changed.
Nominal Returns: The raw percentage return without adjusting for inflation. What you see on your statement. Always looks better than real returns.

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Insurance

Premium: The amount you pay (monthly/annually) to keep your insurance policy active. Stop paying, and the coverage stops.
Sum Assured / Cover: The amount the insurance company will pay on a claim. A term plan with ₹1 crore sum assured means your family gets ₹1 crore if you die during the policy term.
Rider: An add-on to your base insurance policy for extra coverage. Critical illness rider, accidental death rider, etc. Costs extra premium.
Maturity: When your policy term ends. In endowment/money-back policies, you get a payout at maturity. Term insurance has no maturity payout (you only get money if you die during the term).
Annuity: A financial product that gives you regular payments (like a pension) in exchange for a lump sum investment. Used in retirement planning. Returns are typically low.

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Accounts & Regulatory

Demat Account: An electronic account that holds your shares and securities in digital form. Required for buying stocks and ETFs. Not required for mutual funds (but some platforms use it).
KYC (Know Your Customer): Identity verification required before you can invest. Done once using PAN, Aadhaar, and a selfie/video. After KYC, you can invest through any platform.
PAN (Permanent Account Number): Your 10-character tax ID issued by the Income Tax Department. Required for all financial transactions above certain limits. Your mutual fund holdings are linked to your PAN.
SEBI (Securities and Exchange Board of India): The regulator for securities and mutual funds in India. Sets rules that AMCs must follow, protects investors, and penalizes fraud.
Inflation: The rate at which prices rise over time. If inflation is 6%, something that costs ₹100 today will cost ₹106 next year. Your investments need to beat inflation to actually grow your wealth.