Financial Terms Glossary
Understanding financial jargon is the first step to financial literacy. Here are essential terms explained in plain language:
Investment Terms
Asset Allocation: How you divide your money among different asset types (stocks, bonds, real estate, cash) based on your goals and risk tolerance.
Compounding: Earning returns on your returns. The longer you stay invested, the more powerful compounding becomes.
Diversification: Spreading investments across different assets to reduce risk. "Don't put all your eggs in one basket."
ETF (Exchange Traded Fund): A fund that tracks an index (like Nifty 50) and is traded on stock exchanges like a regular stock.
Mutual Fund: A pool of money collected from multiple investors and professionally managed to invest in stocks, bonds, or other assets.
NAV (Net Asset Value): The per-unit price of a mutual fund, calculated daily.
SIP (Systematic Investment Plan): Investing a fixed amount at regular intervals in a mutual fund. Helps average out market ups and downs.
Portfolio: The collection of all your investments — stocks, bonds, mutual funds, real estate, etc.
Insurance Terms
Premium: The amount you pay periodically (monthly/annually) to keep your insurance policy active.
Sum Assured: The amount the insurance company pays out on a claim.
Term Insurance: Pure life insurance that pays out only on death during the policy term. Most affordable type of life cover.
Claim Ratio: Percentage of claims an insurance company settles. Higher is better.
Tax Terms
Section 80C: Income tax deduction up to ₹1.5 lakh for investments in PPF, ELSS, LIC premiums, EPF, etc.
Section 80D: Deduction for health insurance premiums — up to ₹25,000 (₹50,000 for senior citizens).
HRA (House Rent Allowance): Tax exemption available to salaried individuals paying rent.
Capital Gains: Profit from selling an asset. Short-term and long-term gains are taxed differently.
Banking Terms
EMI (Equated Monthly Installment): Fixed monthly payment toward repaying a loan.
CIBIL Score: Your credit score (300-900). Banks use this to decide loan approvals and interest rates.
Repo Rate: The rate at which RBI lends to commercial banks. Affects your loan interest rates.
FD (Fixed Deposit): A bank deposit for a fixed period at a fixed interest rate.
Inflation: The rate at which prices of goods and services increase over time, reducing purchasing power.
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