Financial Glossary

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Amortization

The process of spreading loan payments over time. Each payment covers interest and principal, with more going to principal over time.

Annual Percentage Rate (APR)

The yearly interest rate charged on a loan or earned on an investment, including fees. Helps compare different loan offers on equal terms.

Annuity

A financial product that pays out a fixed stream of money, typically used as retirement income. Can be fixed or variable.

Appreciation

An increase in the value of an asset over time. Example: a house bought for $200,000 that is now worth $300,000 has appreciated by $100,000.

Asset

Anything of value that you own — cash, investments, property, vehicles. Your total assets minus liabilities equals your net worth.

Asset Allocation

How you divide your investments across stocks, bonds, cash, and other assets. The most important factor in long-term returns.

Balance Sheet

A financial statement showing what a company owns (assets), owes (liabilities), and the difference (equity) at a specific point in time.

Bear Market

When stock prices fall 20% or more from recent highs. The opposite of a bull market. Average bear market lasts 9-12 months.

Blue Chip

Large, well-established, financially stable companies with a history of reliable performance. Examples: Apple, Microsoft, Reliance.

Bond

A loan you give to a government or company. They pay you regular interest and return your principal at maturity. Generally safer than stocks.

Bull Market

When stock prices rise 20% or more from recent lows. Average bull market lasts 3-5 years.

Budget

A plan for how to spend and save your money. The 50/30/20 rule is the most popular budgeting method.

CAGR

Compound Annual Growth Rate. The average yearly growth rate of an investment over a specified period. More accurate than simple average returns.

Capital Gain

Profit from selling an investment for more than you paid. Short-term (under 1 year) is taxed higher than long-term.

Compound Interest

Interest calculated on both the initial principal and accumulated interest. The most powerful force in building wealth over time.

Credit Score

A number (300-850) representing your creditworthiness. 740+ gets best rates. Based on payment history, utilization, and credit age.

CPI

Consumer Price Index. Measures inflation by tracking prices of a basket of goods. Used to determine cost of living adjustments.

Debt-to-Income Ratio

Your monthly debt payments divided by gross monthly income. Lenders use this to determine loan eligibility. Keep below 36%.

Default

Failure to repay a loan according to the agreed terms. Severely damages credit score and may result in asset seizure.

Depreciation

A decrease in the value of an asset over time. Cars typically depreciate 15-20% per year. The opposite of appreciation.

Diversification

Spreading investments across different assets to reduce risk. Never putting all eggs in one basket.

Dividend

A portion of company profits paid to shareholders, usually quarterly. Dividend yield = annual dividend divided by stock price.

Dollar Cost Averaging

Investing a fixed amount regularly regardless of market conditions. Reduces the impact of volatility on your average purchase price.

EMI

Equated Monthly Installment. Fixed monthly payment on a loan that includes both principal and interest.

Emergency Fund

Money saved for unexpected expenses. Recommended: 3-6 months of living expenses in a liquid, accessible account.

Equity

Ownership. In stocks, it means ownership shares. In property, it is the difference between home value and mortgage balance.

ETF

Exchange-Traded Fund. Like a mutual fund but trades on stock exchanges like a stock. Usually has lower fees than mutual funds.

Expense Ratio

Annual fee charged by mutual funds/ETFs as a percentage of assets. A 1% ratio costs $100/year on $10,000 invested.

FIRE

Financial Independence, Retire Early. A movement focused on saving 50-70% of income to retire decades earlier than traditional age.

Fixed Deposit

A bank deposit with a fixed interest rate for a predetermined period. Safe but returns may not beat inflation.

Fundamental Analysis

Evaluating a stock by examining the company's financial statements, management, competitive position, and industry conditions.

GDP

Gross Domestic Product. The total value of all goods and services produced in a country. The primary measure of economic health.

Growth Stock

A stock of a company expected to grow revenues and earnings faster than the market average. Usually higher risk, higher reward.

Hedge

An investment made to reduce the risk of another investment. Example: buying gold to protect against stock market declines.

High-Yield Savings

A savings account offering significantly higher interest (4-5%) than traditional accounts (0.01-0.05%). Best for emergency funds.

Index Fund

A mutual fund or ETF that tracks a market index (like S&P 500). Lowest fees, broadest diversification, beats 90% of active managers.

Inflation

The rate at which prices increase over time. At 3% inflation, $100 today buys only $74 worth of goods in 10 years.

IPO

Initial Public Offering. When a private company sells shares to the public for the first time on a stock exchange.

Interest Rate

The cost of borrowing money or the return earned on savings/investments, expressed as a percentage per year.

Liability

A debt or financial obligation. Mortgages, car loans, credit card balances, student loans are all liabilities.

Liquidity

How quickly an asset can be converted to cash without losing value. Cash is most liquid. Real estate is least liquid.

Lump Sum

A single, one-time payment rather than installments. Lump sum investing vs dollar cost averaging is a common debate.

Market Cap

Market Capitalization. Total value of a company's shares. Calculated: share price × number of shares outstanding.

Maturity

The date when a bond or fixed deposit expires and the principal is returned. Longer maturity usually means higher interest.

Mortgage

A loan specifically for buying property, with the property itself as collateral. Typically 15-30 year terms.

Mutual Fund

A pool of money from many investors, professionally managed and invested in stocks, bonds, or other assets.

NAV

Net Asset Value. The per-share value of a mutual fund. Calculated daily by dividing total assets minus liabilities by shares outstanding.

Net Worth

Total assets minus total liabilities. The single most important measure of financial health.

NPS

National Pension System. A government retirement savings scheme offering additional tax benefits beyond Section 80C.

P/E Ratio

Price-to-Earnings Ratio. Stock price divided by earnings per share. Helps determine if a stock is overvalued or undervalued.

PMI

Private Mortgage Insurance. Required when down payment is less than 20%. Typically costs $100-200/month. Can be removed at 20% equity.

Portfolio

Your complete collection of investments — stocks, bonds, mutual funds, real estate, etc.

PPF

Public Provident Fund. A government savings scheme with tax-free returns. 15-year lock-in with current rate of 7.1%.

Principal

The original amount of money borrowed or invested, excluding interest or returns.

Recession

Two consecutive quarters of declining GDP. Markets typically drop but recover. Average recession lasts 10-18 months.

REIT

Real Estate Investment Trust. A company that owns income-producing real estate. Pays 90%+ of income as dividends.

Return on Investment

ROI. The percentage gain or loss on an investment relative to its cost. ROI = (gain - cost) / cost × 100.

Risk Tolerance

Your ability and willingness to endure investment losses. Determines how aggressively you should invest.

Rule of 72

Divide 72 by the return rate to find years to double money. At 8% returns, money doubles in 9 years.

S&P 500

Standard & Poor's 500. An index of the 500 largest US companies. The most common benchmark for US stock market performance.

SIP

Systematic Investment Plan. Investing a fixed amount monthly into mutual funds. The Indian version of dollar cost averaging.

Stock

A share of ownership in a company. Stocks historically return 8-12% annually over long periods but with significant short-term volatility.

Stop Loss

An order to sell a stock when it reaches a certain price, limiting your loss. A risk management tool.

Tax-Loss Harvesting

Selling investments at a loss to offset capital gains and reduce tax liability. Can save thousands annually.

Term Insurance

Life insurance that provides coverage for a specific period. Lowest cost per unit of coverage. No cash value.

Value Stock

A stock trading below its intrinsic value based on fundamentals. Often has lower P/E ratios and higher dividends.

Volatility

The degree of price variation in an investment. High volatility = bigger swings up and down. Measured by standard deviation.

Yield

The income return on an investment, usually expressed as an annual percentage. Dividend yield, bond yield, rental yield.

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