Glossary

Money terms in plain language. Bookmark it for the next time a form or a salesperson uses a word you'd rather check.

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AMC (Asset Management Company): The company that runs mutual fund schemes, for example by picking the securities a fund holds. AMCs are registered with and regulated by SEBI.
AMFI: The Association of Mutual Funds in India. It publishes daily NAVs and monthly industry data, and runs the registration for mutual fund distributors (the ARN number).
Asset allocation: How your money is split between asset classes such as equity, debt, gold and real estate. It explains most of the difference in risk between two portfolios.
AUM (Assets Under Management): The total market value of money a fund or fund house manages on behalf of investors.

CAGR: Compound annual growth rate. The steady yearly rate that would take an investment from its starting value to its ending value. Useful for lump sums; misleading for SIPs, where XIRR is better.
Capital gain: The profit when you sell an asset for more than you paid. Whether it counts as short-term or long-term, and how it is taxed, depends on the asset and how long you held it.
Credit score: A three-digit number, usually between 300 and 900, that summarises your repayment history for lenders. The four credit bureaus in India are TransUnion CIBIL, Experian, Equifax and CRIF High Mark.
Credit utilisation: The share of your total credit card limit you are using at a point in time. Lower is generally better for your score.

Debt fund: A mutual fund that mostly invests in bonds, treasury bills and other fixed-income instruments. Returns are not guaranteed, and fund NAVs can fall when interest rates rise or a borrower defaults.
Demat account: An account that holds shares, ETFs and other securities in electronic form, the way a bank account holds money.
Direct plan: A version of a mutual fund scheme bought straight from the fund house with no distributor commission built in. It has a lower expense ratio than the regular plan of the same scheme.
Diversification: Spreading money across assets that do not all move together, so one bad outcome does not sink the whole portfolio.

ELSS: Equity Linked Savings Scheme. A diversified equity mutual fund with a three-year lock-in. Investments qualify for a deduction under Section 80C if you are in the old tax regime.
Emergency fund: Money set aside for job loss, medical bills or urgent repairs, kept somewhere safe and easy to withdraw. Most households aim for three to six months of essential expenses.
EMI: Equated Monthly Instalment. The fixed amount you pay every month on a loan, made up of interest and principal. Early EMIs are mostly interest.
Equity: Ownership in a company, held directly as shares or through equity mutual funds. Higher long-term growth potential, with sharp short-term swings.
Expense ratio: The yearly fee a mutual fund charges, shown as a percentage of the money you have invested. It is taken out of the fund's NAV, so you never see a bill.
Exit load: A fee charged if you redeem mutual fund units before a stated period. Many equity funds charge one for redemptions in the first year.

Fixed deposit (FD): A bank or company deposit that pays a fixed rate for a fixed period. Bank deposits are insured by DICGC up to the limit set from time to time.
FOIR: Fixed Obligation to Income Ratio. The share of your monthly income that goes to loan EMIs and other fixed commitments. Lenders use it to decide how much more you can borrow.

Hybrid fund: A mutual fund that holds a mix of equity and debt (and sometimes gold) in one scheme.

Index fund: A mutual fund or ETF that simply copies an index such as the Nifty 50 instead of trying to beat it. Costs are low because no one is picking stocks.
Inflation: The rate at which prices rise over time. It shrinks what a rupee can buy, which is why money kept idle slowly loses value.

KYC: Know Your Customer. The identity and address verification you complete once before investing in mutual funds or opening a demat account.

Liquid fund: A debt mutual fund that invests in very short-term instruments. Often used to park an emergency fund.
Lock-in: A period during which you cannot withdraw an investment. ELSS has three years; PPF has fifteen with limited partial withdrawals.
Lump sum: Investing a large amount all at once rather than in instalments.

NAV: Net Asset Value. The price of one unit of a mutual fund, calculated at the end of each business day. A low NAV does not make a fund cheap.
Net worth: Everything you own minus everything you owe.
NFO: New Fund Offer. The launch period when a fund house first sells units of a new scheme. A new fund has no track record.
Nominee: The person you name to receive an investment, insurance payout or bank balance if you die. Keeping nominees current is basic financial housekeeping.
NPS: National Pension System. A government-backed, market-linked retirement account regulated by PFRDA, with low costs and rules on when and how you can withdraw.

PPF: Public Provident Fund. A government-backed savings scheme with a fifteen-year term. The interest rate is revised by the government every quarter.
Premium: The amount you pay an insurer for cover, monthly, quarterly or yearly.

Rebalancing: Selling some of what has grown and buying what has lagged, to bring your portfolio back to its target allocation.
Regular plan: A mutual fund plan bought through a distributor. It has a higher expense ratio than the direct plan because part of the fee pays the distributor.
Repo rate: The rate at which the Reserve Bank of India lends short-term money to banks. Changes in it tend to feed into loan and deposit rates.
Riskometer: The colour-coded dial on every mutual fund's documents showing how risky SEBI-defined methods rate the scheme, from low to very high.

SEBI: The Securities and Exchange Board of India, the regulator of the securities market, including mutual funds, stock brokers and investment advisers.
SIP: Systematic Investment Plan. A way to invest a fixed amount in a mutual fund at regular intervals, usually monthly, by auto-debit.
Sovereign Gold Bond (SGB): A government security denominated in grams of gold that pays a small yearly interest. The government has not been issuing new tranches recently, so most buying now happens on the exchange.
Sum insured: The maximum amount an insurer will pay for covered claims under a health policy in a policy year. In term insurance, the equivalent is the sum assured.

Term insurance: Pure life cover. It pays your family a fixed sum if you die during the policy term, and pays nothing if you outlive it.
Tracking error: How much an index fund's returns wobble away from the index it follows. Smaller is better. Tracking difference is the gap in actual returns.

Waiting period: The time after buying a health policy before certain claims, such as for pre-existing conditions, become payable.

XIRR: Extended Internal Rate of Return. The yearly return that accounts for the exact dates of each investment and withdrawal, which makes it the fair measure for SIPs.