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Jargon Buster : The A-Z of investments

Varun Fatehpuria
August 14, 2022
finance jargons
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We know a lot of the finance terms look a bit scary at first glance. And that then typically discourages a lot of people from taking the first step towards investing.

Here’s a list of finance jargons you should know that will make your investing journey more pleasant:

1. Active Funds

Mutual funds/ETFs that seek to beat the market index (Sensex, Nifty, etc.) and generate alpha

2. Alpha

A measure of ‘excess return’ that an investment generates over and above a benchmark

3. Asset Allocation

The proportion in which your money is divided among different asset classes such as stocks, bonds, etc.

4. Asset Class

A collection of investments (e.g. stocks, bonds) that displays common characteristics and responds similarly to the markets

5. Benchmark

A standard against which the performance of a security, mutual fund, asset, etc. can be measured

6. Beta

A measure of stock’s volatility (refer to volatility definition below) compared to the overall market (Sensex, Nifty, etc.)

7. Correlation

A statistical measure that measures the degree to which two or more securities move relative to each other

8. Debt Fund

Mutual funds that invest in debt securities (like bonds, NCDs, Commercial Papers, etc.) issued by the public/private sector

9. Diversification

The process of dividing your money across different asset classes to reduce the overall risk

10. Exchange-traded Fund (ETFs)

An investment fund that invests in a basket of stocks, bonds, or other assets. ETFs are traded on stock exchanges, just like stocks. 

11. Expense Ratio

% of a fund’s AUM that is paid to the fund house for covering their annual operating expenses like salaries, compliance costs, etc. 

12. Index Funds

Mutual funds/ETFs that track the performance of a specific market index like Sensex/Nifty50

13. Liquidity

The ease with which an asset can be bought/sold or converted to cash

14. Model Portfolios

All-in-one, ready-made investments that combine different asset classes into a single package designed to achieve a specific objective 

15. Mutual Funds

A professionally-managed pool of money that invests in a single or multiple asset class/es

16. Net Asset Value (NAV)

The market value of all securities held by a mutual fund scheme divided by the total number of units of the same scheme

17. Passive Funds

Mutual funds/ETFs that seek to replicate the performance of an underlying index

18. REITs

Real Estate Investment Trust is an investment vehicle that owns/manages income-producing real estate (like office parks, malls, hotels, etc.)

19. Risk

In investing when we talk about Risk, we are usually referring to its ‘Volatility’. See the Volatility definition below. 

20. Risk Profile

An analysis of an individual’s willingness and ability to take risk

21. Rolling Returns

Average annualized returns for a given timeframe taken on every day/week/month till the last day of the period

22. Security

A financial asset like stocks or bonds entitles its holder to either ownership or a repayment right

23. Sharpe Ratio

It measures how much return an asset is generating for every unit of risk it is taking

24. Standard Deviation

A measure of risk that helps to quantify the ‘riskiness’ of an asset/investment

25. Trailing Returns

The return generated by investment for the time period between two specific dates. 

26. Volatility

A measure of how much the price of a security fluctuates up/down over a period of time

Now that we have learned some basic investing jargon, let’s pick up some basics on portfolio construction starting here

Risk Assessment Test