Financial literacy is the ability to understand issues related to personal finance and manage them judiciously. Only a financially literate person is able to update his knowledge continuously for responding effectively to ever-changing personal and economic circumstances.
The absence of financial literacy can damage substantially the interests of the persons concerned. Most of the times, it harms the concerned person indirectly. The damage isn’t visible because the affected person is unable to visualize it. He doesn’t come to know what he is losing and so he can’t measure the damage. This is how the real problem starts that people don’t realize their unawareness and further they aren’t willing to accept it. It makes people averse to change their financial habits.
To increase financial literacy is the need of the hour. We have been organising financial literacy sessions or quizes for schools, colleges, institutions, corporates, residential complex etc. Please contact us @ 9334117776 for such sessions.
Click here to read article – Connecting Financial Planning to Financial Literacy
Financial Glossary: to empower individuals with the financial knowledge necessary to understand the basics of finance
- Average Maturity of a Portfolio
Average time to mature all fixed-period investments of the portfolio.
A standard used to compare how the product has performed.
Beta measures systematic risk. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market.
An investment strategy that first finds individual companies with attractive investment potential, then considers the economic and industry trends affecting those companies to decide whether the investment is worthy.
- Capital Appreciation
Increase in the value of an asset such as a stock, bond, commodity or real estate.
- Commercial Paper
CPs are short-term debt instruments issued by a company that needs to raise money at an interest rate. As they used to be unsecured debt instruments, the issuers of Commercial paper are required to maintain credit rating.
- Coupon Rate
The interest rate that the issuer of a bond agrees to pay the bond-holder until maturity of the bond.
Interest earned not only on the initially invested principal but also on accumulated interest during the period.
- Consumer Price Index
CPI shows changes in prices of two periods of the products which Indian household purchases for consumption. It shows effect of inflation. GOI compiles and publishes CPI every month.
- Contingent Deferred Sales Charge (CDSC)
A type of exit sales load which is charged when units are redeemed within a specific time period following their purchase. These charges reduce the longer the units are held.
- Credit analysis
The process of analysing information on companies and bonds in order to estimate whether the issuer will meet with its future obligations to pay out.
- Credit Rating
It checks credit worthiness of the issuer of a bond and informs its ability to repay the loan. The bonds are rated by an independent rating agency such as CRISIL, ICRA, and CARE.
- Cyclical Stocks
A security whose price is affected by ups and downs in the overall economy is cyclical stock. Examples are shares of industries as construction, automobile, engineering or those affected by the international economy such as shipping, aviation, and tourism. Cyclical stocks are also stocks which are affected by the natural environment such as fertilisers and tea. Contrast cyclical stocks with counter-cyclical stocks, which tend to move in the opposite direction from the overall economy, and with consumer staples, which people continue to demand even during a downturn such as drugs, insurance basic foodstuffs etc.
- Credit (Default) Risk
The possibility that a bond issuer will default, and fail to repay principal or interest as promised.
- Currency (Foreign Exchange) Risk
This risk arises from the change in price of one currency against another. Investors and multinational businesses exporting or importing goods and services or making foreign investments throughout the global economy are faced with this type of risk.
The organization that holds and safeguards the custody of securities and other assets of an individual, mutual fund or investment company.
- Debt Funds
Debt funds are the mutual funds which combine the feature of capital appreciation with safety. They invest in various types of debt securities issued by different issuers having different characteristics. These debt securities such as Treasury bills, G-secs, Certificate of Deposits (CDs), Commercial Papers (CPs), Bonds and money market securities are market tradable and provide the scope of capital gain apart from interest. Especially in India, where the debt markets are underdeveloped, debt funds are sometimes the only way to invest in the debt market. These funds also score over direct investment in a bond because they offer diversification, liquidity, tax benefit, experts’ touch and convenience of investing. Multiplicity of dividend options (daily, weekly, fortnightly, monthly) makes them more lucrative.
- Earnings (per share)
Total earning of a company divided by the number of shares outstanding.
- Exchange Traded Fund
Exchange Traded Funds (ETFs) are the investing innovation that combines the best features of mutual funds, especially index funds, with the trading flexibility of individual securities. Globally they are widely used by planners as the efficient and cost effective tool to take advantage of investment opportunities around the world. In India, they have witnessed major developments over the past couple of years.
- Expense Ratio
Expense ratio indicates how much an investor pays a fund ( in percentage term) every year to manage his money.
- FCNR (Foreign Currency Non Resident / rupee Bank Account)
A Non-resident Individual of Indian Nationality or Indian Origin can open a FCNR account to retain their money in foreign currency in India which eliminates the risk of fluctuations in currency conversion.
- Foreign Institutional Investor (FII)
FIIs are institutions established or incorporated outside India which are registered with SEBI to make investments in India in securities.
- Floating rate
An interest rate, which is periodically adjusted, usually based on a standard market rate outside the control of the institution. These rates often have a specified floor and ceiling, which limit the floating rate. The opposite of having a floating rate is having a fixed rate.
A lower limit for a price, interest rate, or other numerical factor at which a stop order is activated.
- Government securities/ Gilts
Securities that are sold to the public by the government, for example, bonds.
- Growth investing
An investment style that invests in fundamentally sound businesses with the belief that they will go up in price. The stocks in this portfolio are well researched, liquid and of high quality and will usually give you a high P/E ratio and lower dividend yields in comparison to the market.
- Inflation risk
The risk that the value of assets or money will be eroded by inflation affecting the purchasing power of a currency
- Interest rate risk
The risk that a security’s value will change due to an increase or decrease in interest rates. A bond’s price will always drop as interest rates rise and when interest rates fall, a bond’s price will rise.
Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation. Under Indexation, the cost of the asset is inflated as per the government notified inflation factor. The central government specifies an index linked to the wholesale price index. The indices of two years (year of purchase and the year of sale) are used for the purpose of computing capital gains tax.
The ease with which an asset can be converted to cash.
A Non-Resident External account is opened with foreign currency for making investments in India on a repatriable basis.
An Ordinary Non-Resident Rupee account which can be opened for funds remittances from abroad or from local funds. The amount in the account is, however, non-repatriable.
- Promissory note
A negotiable instrument signed by one party in which he promises unconditionally to repay a loan to second party under specific terms.
- Real return
The rate of return earned on an investment after adjusting for the rate of inflation during the time the investment was held.
The return from abroad of the financial assets of an organisation or individual, and the conversion of foreign currency to Rupees.
- Risk/ reward trade-off
It refers to the concept that potential return rises with an increase in risk. Low risks are associated with low potential returns, whereas high levels of uncertainty (high-risk) are associated with high potential returns.
- Risk tolerance
The degree of uncertainty that an investor can tolerate in regard to the risk of losing money for the potential to make money. The risk tolerance varies with age, income level, financial goals etc.
- Standard Deviation
A measure of the degree to which a fund’s return varies from the average of the scheme’s own return. A low standard deviation indicates that the data points tend to be very close to the mean; high standard deviation indicates that the data points are spread out over a large range of values.
Transfer of investment from one scheme to another usually within the specified options. It is recommended due to market conditions or goal planning.
- Top-down investing
The top-down style of investment management places primary importance on country or regional allocation. It generally focuses on global economic and political trends in selecting the countries or regions where they expect to find investment opportunities. After that only, fundamental analysis of individual stocks is made for final selections.
- Turnover Rate
Based on the corpus, it is the number of times at which the fund buys and sells securities each year.
- Value investing
The investment strategy to buy under-priced stocks that have the potential to perform. It tries to find shares which trade for less than their intrinsic values. It is based on the principle that market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company’s long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.
- Yield to Maturity (YTM)
The rate of return earned by a bond if it is held until the maturity date. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate.
- Yield Curve
A line that plots the interest rates or yield vis-à-vis maturity dates. If short-term rates are lower than long-term rates, it is a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there isn’t much difference, it is a flat yield curve. The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity.