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Term Explanation
Actuals Actuals is an accounting term. It means : Documented Historical Results.
Adjusted Present Value (APV) t is the Net Present Value (NPV) of a Project or a Company, if financed solely by Equity + Present Value of Financing Benefits. APV = NPV (of a venture financed solely with equity capital) + PV of Financing
Advance EMI Advanced Equated Monthly Instalment. Advanced EMI is paid for loans servicing wherein EMI Instalments' are paid to lender in advance via advanced Cheques. This brings additional confidence in the lender about the credibility of the borrower. In this way the borrower can get 100% loan sanctioned as well as favourable interest terms.
After Hours Trading Process of Buying and Selling Securities from Stock Exchange after and/or before the regular Exchange Timings, instead of the regular Trading Hours. Extended hours allow trader to quickly buy or sell Securities by acting quickly to acts, events, news which is strategic and is privy to them.
Alternative Investment Alternative Investment are not usually done in standard options like Stocks, Bonds, Cash etc. Alternative Investments are usually done in Private Equity, Hedge Funds, Real Estate, Commodities and Derivatives. Alternative Investments are usually held by High Net Income (HNI) Individuals or Institutional Investors who have the skills and experience in managing complex characteristics and regulations of these Alternative Investments.
Acid Test Ratio (Acid-Test Ratio) Acid test Ratio is a financial term. It is also known as Liquidity Ratio, Working Capital Ratio or Quick Ratio. This ratio measures the financial ability of a company or institution to use its liquidity/cash/quick assets to successfully address its immediate/quick/short term liabilities. Quick Ratio = (Total Current Assets - Inventory - Prepaid Expenses)) / Current Liabilities.
Accruals Accruals are unaccounted Earned Revenues and/or Expenses, for which there is no receipt or invoice available till the end of the accounting period. Accruals affect the Balance Sheet and Profit Loss Statement of the companies.
Acts of God (Act of God) "Act of God" is also known as "Act of Nature". Act of God is a legal terminology which is used extensively in Insurance Business as well as during signing Business Contracts. Those events of circumstances which are Inevitable, unpredictable, and extremely severe and have been caused by fury of Natural Forces (beyond the intervention or control of human beings) and over which nothing can be done/insured/ensured (e.g. Tsunami, Flooding, Earthquake, Fire, Lightning, Thunderstorm etc) are known as Act of God (Acts of God / Acts of Nature).
Aggregate Turnover Aggregate Turnover include all taxable supplies made by Taxable Person. It does not matter whether the supplies have been made on his behalf or on behalf of the principals. AggregateTurnover does not include value of supplies on which Tax is levied on Reverse Charge Basis and value of Inward Supplies.
Arbitrage Arbitrage is a term used to define the act of simultaneous purchase and sale of asset in order to make profit from the transaction. The profit exists due to difference of price and is a by product of market inefficiencies. Arbitrage takes advantage of price difference amongst two different markets for the same product (asset).
Asset Turnover Ratio Asset Turnover Ratio is a good indicator to measure the efficiency with which a company is deploying its assets for revenue generation. Thus, Asset Turnover = Total Revenue/Total Assets.
Average Accounting Return (AAR) Average Accounting Return (AAR) is also known as Accounting Rate of Return (ARR). It provides an estimate about the Projects Worth spread of its lifetime period. (AAR = Average Profit /Average Investment). AAR measures the optimisation of how well the investment assets are being used to generate income.
Average Annual Return (AAR) Average Annual Return (AAR) is an accounting terminology which means the Mean (Sum Total/Number of Periods) of the Returns obtained by a company in a series of time periods. AAR = (Return in Period 1 + Return in Period 2 + Return in Period 3 + ...Return in Period X) / Number of Periods
Bad Loans A loan which is not being properly serviced as initially agreed by the borrower i.e. A loan where EMI (Equate Monthly Instalments) are not being paid on time by the borrower resulting in financial loss to the lender is known as a Bad Loan. At times, bad loans are never paid back. At times, there is a OTS i.e. One Time Settlement. In both cases, it results in Net Loss to Lender.
Banking, Financial Services and Insurance (BFSI) Banking, Financial Services and Insurance (BFSI) is term used to describe a part of market (i.e. industry segment), wherein all companies related to Banking Industry, Financial Services Industry and Insurance Industry are involved. BFSI Industry Segment comprises of Banks (Commercial Banks, Retail Banks, Insurance Companies, NBFC Non Banking Financial Companies), Cooperatives, Funds (Mutual Funds, Hedge Funds, Pension Funds), Stock Brokerage Companies, Payment Gateway Companies, Financial IT, ITES, BPO's.
Book Value Book Value is the actual value at which the asset is "weighed and accounted for" on a company's balance sheet. Book Value = Cost of Asset - Accumulated Depreciation.
Bankers Cheque Bankers Cheque is also known as Bankers Draft. A Banker's Cheque is different from a normal cheque. A Banker's Cheque is equivalent to asking a Bank to write a Cheque. This is the level of credibility of Bankers Cheque. However, just like a normal cheque, a Bankers Cheque is payable to the nominated payee.
Banking Ombudsman Banking Ombudsman was created by Government of India to resolve complaints of consumers of banks related to banking services. Banking Ombudsman is a quasi judicial authority and works to resolve banking consumer complaints. The Banking Ombudsman has 20 regional offices in India. In order to enhance the operational effectiveness of Banking Ombudsman, it is staffed by Reserve Bank of India (RBI) and not by the banks operative in India.
Basis Point (BPS) Basis Point is One Hundredth of One Percentage Point (0.01%). It is mainly used worldwide to reflect the change (increase or decrease) in applicable Interest Rates. This tiny measure of interest rate can do a lot of positive or undue a lot of positive for investors.
Beta Measure of Volatility / Systematic Risk of a Security or Portfolio in comparison to the market condition. Beta is also known as Beta Coefficient.
Bharat Interface for Money (BHIM) Bharat Interface for Money i.e. BHIM is a mobile based application (Mobile App), which has been developed by Government of India to promote Digital Transactions across India. Digital Payments across all banks can be initiated to and from any bank to any bank in India via BHIM App. Any individual who has an Aadhaar Card can use it as an ID to initiate digital transaction via BHIM App.
Billing Cycle Period of Time (Interval of Time) between Bills for Goods and Services. Period of Time between Start Date of Bill to End Date of Bill. Usually it is monthly basis. It can also be hourly, daily, weekly, monthly, quarterly, half yearly, annually. Period to Period record of services and/or goods in the timeframe between bill cycles. Time Period between Initial Invoice and Secondary (Next) Invoice.
Bond Bond is a form of Debt Security. Bonds can also be referred to as Bills, Debt Instruments. Bond is financial terms is a written promissory note that a Specific Amount of Money on a Specific Date shall be return back by Bond Issuer (Borrower) to Bond Purchaser (Lender). In other words all kinds of loan agreements are bonds. Bonds are usually issued by Governments (Municipal Corporations, State Governments, Central/Federal/National Governments) and Companies to raise finance.
Bombay Stock Exchange (BSE) Bombay Stock Exchange (BSE) is amongst the most famous Stock Exchange of India. It was established in 1875. BSE is also the oldest Stock Exchange in India. S&P BSE SENSEX is amongst the most popular stock market benchmark index in India.
Blockchain Technology Blockchain Technology works on basis of distributed and shared sets of databases for transaction facilitation. Blockchain Technology is like a globally spread net (chain) of databases, and it eliminated the requirement of third party security verifications for transactions. Blockchain Technology is considered as a disruptive technology for Finance and Banking Industry, worldwide. The implementation of Blockchain Technology shall eliminate the need for third party validation, reduce transaction fees and increase transaction transparency.
Book to Market Ratio It is the ratio which is used to find the "Value of a Company" by comparing Book Value of Firm by its Market Value. Book to Market Ratio = (Book Value of Firm)/(Market Value of Firm)
Budget A budget is a comprehensive quantitative planning/estimation for a specified time period which is usually a year. In a budget, a fix amount of money is allocated for a specific cause. This quantitative exercise is carried out mostly on an annual basis with
Read More... money allocation to various objectives, as required. The objective of budget planning is to obtain maximum return or achieve maximum goals on pre agreed objectives. Budget can also be termed as a Quantitative Estimation of costs, expenses, returns in a specified time period (usually a year). Budget also helps in standardising the performance of various departments and individuals who are involved in the budget planning and execution in a specified time period.
Capitalisation Rate Capitalisation Rate in broader terms is defined as Rate of Return on an Investment. Capitalisation Rate also defines the investors rate of return on a specified investment, usually in infrastructure. (Capitalisation Rate = Net Operating Income / Current Market Value)
Capital Gain Tax (CGT) Tax levied on Capital Gains. CGT are applicable only when an asset is realized, not while it is held by an investor.
Capital Expenditure (CAPEX) Expenses incurred by a company for acquisition or upgradation of existing physical assets e.g. Property, Buildings or Equipment etc are categorised as CapEx. CapEx funds are used for undertaking Greenfield or Brownfield Projects whether expansion or new project.
Capital Receipts (CR) Capital Receipts (CR) as receipts which create Liability for the company or in other words, reduce the asset value of the company. They are non-recurring and non-routine in character. However, the benefits of Capital Receipts can be enjoyed by the receiving company
Read More... for a long period of time. Capital Receipts are shown on the Liability Side of the Balance Sheet of any company receiving them. Capital Receipts are different from Revenue Receipts i.e. Capital Receipt when invested generate Revenue Receipt.
Capital Markets Markets where investors, traders, companies etc can sell and buy Equity and Debt Instruments are known as Capital Markets. Capital Markets are organised, dynamic and yet regualted by nature. They are very important for the healthly economy. Users and Suppliers of Capital usually meet, interact and transact via capital markets.
Compound Interest (CI) Interest calculated on Initial Principal Loan/Deposit Amount + Accumulated Interest of Previous Loan/Deposit Periods
Competitive Advantage Corporate Structure in a company, institution or organisation defines the management and governance system for optimum execution and achievement of the pre-stated stated goals and objectives. E.g. In a company, the Corporate Structure can include Chairman, Board of Directors, CEO, CFO, CMO,
Read More... Directors, Middle Line Managers, Bottom Line Executives alongwith their position hierarchy, reporting mechanism, performance areas and targets. Corporate Structure also includes description and work definition of various departments of the company like Marketing, Finance, Management, Operations, Sales etc. Corporate Structure model of one company cannot be replicated onto another. The internal and external factors of every organisation are unique and have to be designed as per their unique local needs. Some corporate structures are vertical in design, some are horizontal in design, some are hybrid in shape and form.
Corporate Structure Internal and External conditions and market parameters sometimes affect the strategic nature of a product or service of a company and/or country. Competitive Advantage allows a company to manufacture goods or services at a lower price or more desirable technical feature than other companies. Competitive Advantages can be in the form of cost advantage, brand advantage, quality advantage, distribution advantage, intellectual property advantage.
Cost Benefit Analysis (CBA) Cost Benefit Analysis (CBA) is also sometimes known as Benefit Cost Analysis (BCA). It is a systematic financial analysis to estimate the strengths and weaknesses of alternative approaches. It is the process of quantifying costs and benefits of a financial decision.
Cost of Capital Cost of Capital is the cost which the Business Firm must pay to Raise Funds. Cost of Capital can also be termed as Financing Cost. Funds are usually raised by a company via Loans or issuing Bonds. However, there is always a cost which has to be paid back to the lender. This is known as the Cost of Capital.
Cash Flow Positive Cash Flow is always preferred. Cash Flow is not a measure of health of company or health of business, because cash flow does cannot reflect the amount of profit or loss. Cash Flow increases by selling products, services, existing assets, reducing operational cost, taking a loan etc.
Read More... Cash Flow decreases in the reverse situation. Cash Flow is however a good measure to analyse the Liquidity Position of a business or a company.
Confederation of Indian Industries (CII) CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process. Founded in 1895, India's premier business association has over 8000 members, from the private as well as public sectors,
Read More...including SMEs and MNCs, and an indirect membership of over 200,000 enterprises from around 240 national and regional sectoral industry bodies. The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes. II charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues. Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few (Source :
Current Account (Current Bank Account) Current Account (Current Bank Account) is used by corporate and business community. In a current account, frequent deposits and withdrawals can be done without any prior notice. Current Account also has the facility of Overdraft, which is not available in normal Savings Account. A current account is a Zero Interest Bank Account.
Current Ratio Current Ratio measures a company's financial capability to pay back Short Term and Long Term Debt. In other words, Current Ratio is a company's Liquidity measuring ratio. (Current Ratio = Current Debt / Current Liabilities).
Current Assets Assets (Cash or otherwise (which can be easily converted to Cash) are known as Current Assets. Current Assets are reflected in the Balance Sheet of a Company, and are usually presented in the form of ease of liquidity. Current Assets can be owned by Individuals as well as Entities (Business, Government, Institutions etc)
Daybook Daybook is an accounting book in which the transactions of the day are entered in the order of their occurrence, for later posting to appropriate ledgers. Daybook is also known as the "Book of Original Entries".
Debt Ceiling It is the Upper Limit of the amount of money that a government can borrow
D&B (DnB/Dun & Bradstreet) D&B is an American Multi National Company which provides specialised data to and about businesses like Credit History, B2B Sales, Risk Exposure etc
Daily Price Limit Daily Price Limit is the maximum and minimum price within which a commodity, futures or options in the stock market is allowed to rise or fall on a given day (one trading session).
Debt Restructuring Debt Restructuring is a Debt Relief process wherein a Business Entity (Proprietorship Firm, Partnership Firm, LLP, Pvt Ltd, Ltd) or a Sovereign Entity (State and Central/Federal Government) can reduce and/or renegotiate the terms of debt repayment with the lender, if the Entity under consideration is facing Financial Distress and there is threat to sustainability of its operations. Under Debt Restructuring, Entities usually negotiate for better terms of agreement for debt servicing. Debt restructuring also allows companies to avoid default. Debt Restructuring usually helps companies to lower interest rates and/or enhance the timelines for debt repayment to the lender or exchanging a part of debt with equity in the debtors Entity. Debt Restructuring is different from Refinancing.
Deposits Deposit is a financial and accounting term. It means the amount of money (sum of money) paid/put inside a reliable entity i.e. a bank or a financial institution.
Depreciation Depreciation is an accounting term. It means "reduction" in the value of an asset over a period of time. Depreciation is measured in three ways i.e. Straight Line Depreciation Method, Unit of Production Method, Double Declining Balance Method.
Demand Elasticity It is the measure of relationship between a Change in the Quantity Demanded of a specific good/service w.r.t. change in its price. Price Elasticity of Demand = (% Change in Quantity Demanded)/(% Change in Price). It is also known as Demand Elasticity.
Debenture (Debentures) Debenture is a Debt Instrument. A Debenture is not always secured by physical assets or any kind of collateral. Governments and companies worldwide use Debentures as a popular Debt Instrument to secure medium to long term capital/funds from the market. Debenture Holders are creditors of the company. Debentures are paid off in a fixed period of time by the borrower. Debentures can be both secured and un-secured. Payment + Fixed Interest has to be paid by borrower to creditor, as agreed, even if there is a loss.
Debt Security Debt Security is a Debt Instrument. (Debentures, Promissory Note, Bond - Corporate, Bonds - Government, Bonds - Municipal Corporation, Certificate of Deposit (CD), Preferred Stocks etc). The Debt Instruments can be Traded i.e. purchased and sold, with a specified time limit for repayment alongwith a pre-determined interest rate.
Deflation When there is reduction in the general level of prices of goods and services in an economy over a period of time, this phenomenon is known as Deflation.
Demat Account Demat Account is different from a Savings or Current Account. In India, Demat Account is used for conducting of trade (sale and purchase) of electronic assets like Shares, Securities etc. By opening a Demat Account, an Individual or Investor can do away with taking and giving
Read More... physical possession of Securities. Access of Demat Account is only possible via password. Advantages like Immediate Transaction, Immediate Transfer of Money, No Need to Buy Stamp Papers, Reduced Transaction Cost etc make Demat Accounts a very popular mode of Securities Trade in India.
Digital Signature Certificate (DSC) Digital Signature Certificate (DSC) is the Digital Equivalent of Physical Signatures. Digital Signature Certificate can also be termed as Secure Digital Keys. These are used to prove or authenticate a person/individuals identity so as to either login into a portal or access emails.
Read More... In India, Digital Signature Certificate (DSC) is managed and monitored by Ministry of Corporate Affairs (MCA), Government of India.
Dormant Account In banking terms, a current or savings bank account which is inactive for a long time period (no withdrawal, no deposit) and has low balance amount it is termed as Dormant Account. A Dormant Account is different from an In-Active Account. An account which shows no activity for
Read More... 12 months is classified as In-Active Account. If an account has no activity for 24 months, it is classified as Dormant Account (as per RBI Guidelines).
Dow Jones Dow Jones is amongst the world largest financial news company. Dow Jones is different from Dow Jones Industrial Average (DJIA). Dow Jones company was founded in 1896. Dow Jones company also owns the Dow Jones Industrial Average (DJIA).
Downpayment Downpayment is a commonly used term which means the advance (initial) payment made during the process of purchase of an asset like House, Land, Commercial Property or any such asset. The term downpayment is used when an Asset is being purchased on credit with
Read More... an initial payment i.e. downpayment made to the seller by the buyer. Downpayment is also made at times during payment for access to a service. Downpayment = Purchase Price of Asset - Mortgage Loan Amount.
Debt/Equity (D/E) Ratio It's the Ratio used to measure a company's Financial Leverage in the market. The ratio indicates how much debt a company is using to finance its assets w.r.t. the Amount of Value represented in Shareholder's Equity.
Read More... Debt/Equity Ratio = Total Liabilities/Shareholder's Equity. D/E = Total Liabilities/(Total Assets - Total Liabilities)
Escrow Escrow is a legal cum financial arrangement between the Buyer and Seller of asstes/commodity in which the asset is held by a third party on behalf of buyer and seller, in order to facilitate the safe business transaction. The asset/funds/commodity is held in a neutral manner by the Escrow Agent, till the time, all pre-agreed business transaction conditions have been fulfilled by both the buyer and seller. An escrow arrangement enhances the security of a clean and balance business transaction. It is particularly useful when two parties i.e. Buyer & Seller are new to each other or unknown. Escrow arrangement is very frequently used in Real Estate, Stock Market, Intellectual Property, Capital Assets business transactions, worldwide.
Earnings After Tax (EAT) Earnings After Tax (EAT) is a metrics to measure the net profitability of a company or institution. It is usually referred to as a percentage in reference to the total earnings of the company. This helps to give the realistic measure of true profitability for the company or institution. EAT = Total Revenue - (Total Expenses + Taxes). EAT is also referred to as the "bottom line" of the company.
Equity Linked Savings Scheme (ELSS) ELSS is Tax Saving Mutual Fund. ELSS has a LockIn Period of three years.
Export Import Bank of India (EXIM) EXIM Bank is the leading export financing bank of India. It is a government bank. EXIM Bank was established in 1981. The main purpose of EXIM Bank is to promote, facilitate and finance export (cross border trade). Various services like Export Finance, Line of Credit, Export Credit etc are some of the main activities undertaken by EXIM bank.
Equated Monthly Instalments (EMI) Equated Monthly Instalments (EMI) is a financial term which means that it is a fixed payment which is payed every month (on a fixed calendar date) by borrower to lender in order to pay for the loan amount. The EMI consists of two components of loan amount i.e. Principal Amount
Read More... and Interest Amount. The percentage of Principal and Loan amount can vary from lender to lender and also depends upon Loan Amount. EMI payments continue until Total Loan Amount i.e. Principal + Interest are fully paid off.
Expense Ratio It's the measure of Costs to Investment Company to operate a Mutual Fund. It is also known as the Management Expense Ratio (MER).
Elasticity Elasticity is an economic term which is used to describe a market situation wherein supply of goods or services is affected by variation in price of the respective good or service.
Exchange Rate Exchange Rate is also known as Foreign Exchange Rate, Currency Exchange Rate, Forex Rate, FX Rate etc. It is the rate of exchange between the currencies of two countries. It can also be described as the value of one country's currency, w.r.t. other country's currency. Most of the worlds currencies are compared or benchmarked against US Dollar, British Pound, Euro, Yen.
External Commercial Borrowings (ECB) ECB's are loans provided by Non-Indians (Foreign) Lenders to Indian Borrowers in Foreign Currency. ECB's are used for financing of commercial activities in India. ECB is different from FDI (Foreign Direct Investment). ECB cannot be used for Equity Investment.
Exchange Traded Funds (ETF) Exchange Traded Funds (ETF) are Index Funds. These funds are listed and traded in Stock Exchanges globally, including in India. ETF's can hold assets like Stocks, Commodities, Bonds etc. ETF's are attractive investment option because of comparatively Low Transaction Costs, Higher Tax Efficiency and having Stock like Operational Features. Further, an ETF combines the valuation feature of a Mutual Fund or Unit Investment Trust, which can be bought or sold at the end of each trading day.
Fair Market Value (FMV) Estimation of the Real Market Value of an Asset like Physical Property, at which the owner of the asset shall be knowingly willing to sell the asset without any pressure.
Foreign Direct Investment (FDI) Foreign Direct investment (FDI) is a financial term. FDI is a very popular term used to describe the event (business transaction), when an investor (company or individual) spends money to purchase assets, resources, existing business, start new business in a new country.
FinTech FinTech is short word for all forms of Technology and Technological Innovation in the financial sector.
Financial Inclusion Financial Inclusion is a public welfare concept which is concerned with the delivery of Financial Services, Financial Products and Financial Benefits to low income segment of society at affordable price and in time. Financial Services also includes Banking Services, Access to Credit, Insurance etc. Financial Inclusion also ensures that Financial Products, Financial Payments, Insurance, Financial Services and Financial Benefits are available to low income segments of society in a competitive manner and at low cost so that the client is able to choose the best possible service provider. Access to low cost Digital Technology can play a pivotal role in successful implementation of Financial Inclusion policies. Financial Inclusion in not only limited to Individuals. It also includes businesses.
Fixed Deposit (FD) / Fixed Deposit Accounts Fixed Deposit (FD) Bank Account is a financial/banking investment instrument which is very popular in India with retail and corporate customers. Under this mechanism, the depositor parks a fixed amount of money with a Bank for a pre-specified amount of time interval. In lieu of this assured money deposit by the investor, the Banks provide higher rate of the interest in comparison to savings bank account. FD's are usually for a time period of one, two and five years. The higher the amount and time period of deposit commitment by the investor, the higher the rate of interest, provided by the Bank. Fixed Deposit (FD) are a very popular means of savings and assured returns by individual investors in India.
Floating Exchange Rate In a Floating Exchange Rate regime for currencies, the price (value) of a specific currency is set floating i.e. The value of the currency depends on the demand and supply of that specific currency in the International Forex Market w.r.t. other currencies. Floating Exchange Rate regime is totally opposite in terms of currency valuation to a Fixed Exchange Rate regime.
Free Cash Flow (FCF) / Free Cash Flow to Firm (FCFF) Free Cash Flow (FCF) is a financial measure of the amount of cash which a company is able to generate after spending specific amount of money to maintaining or expanding its existing Asset Base. FCF is a measure of the company's ability to further enhance shareholders value. FCF is an important indicator of the Financial Health of the company. FCF also helps investors to gauge the ability of a company to invest in new projects / asset acquisition. (Free Cash Flow = Operating Cash Flow - Working Capital Changes - Capital Expenditures - Dividends). (Free Cash Flow = Net Cash Flow from Operations - Capital Expenditures).
Financial Year (FY) A Year (Start Day to End Day) in which the country assesses the taxation on its citizens and companies is known as Financial Year. In India Financial year starts on 1st April and Finishes on 31st March of the next year. Financial year (FY) is different from Assessment Year (AY).
FDI InFlow Inward Direct Investment made into the Indian Economy (Indian Market) from outside India by Non-Resident Individual/Investor)/Company.
FDI OutFlow Outward Direct Investment made outside the Indian Economy (Indian Market) by a Resident Individual/Investor/Company.
Foreign Portfolio Investment (FPI) Foreign Portfolio Investment (FPI) specifically refers to is investment made by Non-Residents in the purchase of securities e.g. Shares, Bonds (Government Bonds, Corporate Bonds), Infrastructure Securities etc. The investors who undertake such investments are known as "Foreign Portfolio Investors". Foreign Portfolio Investors are further classified into three categories i.e. Class I (Low Risk), Class II (Moderate Risk), Class III (High Risk).
Forensic Accounting As the name suggests, Forensic Accounting is the combination of Accounting, Forensic and Audit. Forensic Accounting is a specialised branch/service of accounting, which provides detailed investigative accounting report, usually required by judicial courts for cases related to frauds, money laundering, black money trails etc
80-20 Rule 80-20 Rule is a management term. It is also known as Pareto Rule. As per this rule, 80% of Business Results (outcomes) can be attributed to 20% of all causes. The 80-20 rule is used to help the company to identify which parameters/factors are most important based on an efficient use of available resources. In simple words, 80-20 rule says that 80% of Business outcome comes from 20% Efforts (Input Resources), and all businesses must identify those 20% of Input Efforts, in order to better optimise Resource Utilisation.
Forensic Audit Forensic Audit is the term used to define the business function of examination of an company, institution or an individual's Financial Information i.e. Assets, Transactions etc as evidence in court. Forensic Audit is used mostly to detect misuse/diversion of Funds,
Read More... Wilful Defaults and Window Dressing of Financial Statements. In the recent times, RBI (Reserve Bank of India) has made Forensic Auditing mandatory for Large Business Transactions and also for Restructuring of Accounts. Forensic Audit has been necessitated because of rise in the number of Money Laundering and Wilful Default cases in the market. Forensic Audit is also used by various Government Agencies like The Enforcement Directorate and Serious Fraud Investigation Office to detect financial irregularities and financial fraud. The process of Forensic Audit uses Financial, Psychological and Qualitative Tools to detect Fraud Patterns. Special Software, Special Technology and Special Training is required to successfully conduct Forensic Audit to detect and analyse Fraud Patterns.
Gross Domestic Product (GDP) Gross Domestic Product (GDP) is the Monetary Value Equivalent of all the Manufactured/Assembled/Finished Products & Services delivered within a country's borders in a specific time frame. GDP is a macro measurement of a country’s Economic Activity. It is usually measured
Read More... and compared on a Year-on-Year basis. GDP = Government Spending + Consumer Spending + Investments + Net Exports (Exports-Imports). Thus, GDP is a Broad Term to gauge and compare the Economic Health of a Country.
Gearing Ratio Gearing Ratio is a financial measure of the amount of company's activities which are financed by the owner's funds vs. creditor's funds. (Gearing Ratio=Long Term Debt / Equity Capital). (Gearing Ratio = Company Debt / Shareholder Equity).
GST Identification Number (GSTIN) GSTIN is a 15 digit unique number. GSTIN is issued by Government of India to all business entities, which are liable to pay indirect tax i.e. GST. In GST Tax Regime, all taxpayer business entities shall come under one single tax payment authority adn all previously issued indirecttax numbers like Service Tax Number, Sales Tax Number etc shll merge into one number i.e. GSTIN. There will be only one tax registration for indirect taxation i.e. GSTIN. GSTIN is expected to enhance tax compliance.
Goods and Service Tax (GST) GST in India was implemented on 1st July, 2017. It is a new form of Tax Regime for collection of Indirect Taxes. Other form of Indirect Taxes like ST (Sales Tax), VAT (Value Added Tax), Customs Duty etc have all be subsumed into GST. GST is a comprehensive, integrated, multi stage tax, which shall be applicable on every value addition stage/step. GST is a destination based tax, meaning the tax revenue is divided w.r.t. geographic location of value addition from 1st step to Final Step. All Goods and Services in India have been categorised into 5 taxation categories/slabs under GST i.e. 0% Tax, 5% Tax, 12% Tax, 18% Tax, 28% Tax.
Gross Non Performing Asset (GNPA) GNPA is a Banking and Financial term. It is measured by "Principal Dues (Principal Amount Due) of NPA's + Funded Interest Term Loan (FITL)".
Gross Margin (Gross Profit) Selling Price - Cost to Produce is known as Gross Margin. It is usually referred to in the form of a Percentage (%). Gross Margin is also known as Gross Profit. Gross Margin can also be described as Net Sales - Cost of Goods to the company. Gross Margin does not include General Administrative Expenses (GAE).
Gross Profit (Gross Margin) Selling Price - Cost to Produce is known as Gross Profit. It is usually referred to in the form of a Percentage (%). Gross Profit is also known as Gross Margin. Gross Profit can also be described as Net Sales - Cost of Goods to the company. Gross Profit does not include General Administrative Expenses (GAE).
Hedge Fund Hedge Fund is an Alternative Investment. hedge Funds put pooled funds to strategic use/work in order to obtain the following objectives : "Earn High Return" for investors. hedge Funds can work in national and international financial markets at the same time, gathering Higher Returns. Hedge Funds are normally not accessible to normal/common investors. These are usually available to Accredited Investors. Hedge Fund's face less regulation than Mutual Funds and similar investment vehicles.
Hurdle Rate Hurdle Rate is also known as Target Rate or Minimum Acceptable Rate of Return (MARR). Hurdle Rate refers to the minimum Rate of Return, which a company or investor expects from an investment in a project. In order for a company or investor to commit money (investment) in a specific project, the Hurdle Rate must be equal or greater than the Internal Rate of Return (IRR).
Impaired Asset Impaired Asset is an asset belonging to an individual/Company/Investor wherein the current market value of the asset is less than the value of the asset, as mentioned in the balance sheet. Impaired Assets become a matter of concern when it is estimated that the market value of the asset shall remain low in the foreseeable future. Companies must write down the value of impaired assets, at least once a year to bring valuation parity.
Inelastic Inelastic is an economic term which is used to describe a market situation wherein supply of goods or services is not affected by variation in price of respective good or service.
Indirect Tax As the name suggests, Indirect Tax is a tax which is applied on Goods and Services but this tax is neither income tax nor is it tax on profit. In Indirect Taxes, the liability to pay the tax is on the individual who then shifts the tax burden to another individual i.e. in indirect tax, the burden of tax can be shifted to another person/entity other than the taxpayer. In India, earlier Service Ta, Excise Duty, Custom Duty, Sales Tax, Entertainment Tax used to be the indirect tax. Now since 1st July, 2017, GST has replaced all these taxes and has become the singular Indirect Tax in India for various Products and Services.
Inflation Inflation is the Speed or Rate at which the level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central Banks across the world Attempt to Limit the National Inflation and also simultaneously Avoid Deflation in order to keep the Economy Smooth.
Invoice Discounting Invoice Discounting is a financial term which signifies a payment mechanism under which the seller of product or service does not have to wait for the customer (client) to make payment within their normal credit terms. Instead, the seller receives cash from a finance company/3rd party, almost instantaneously when the seller raises the invoice. This mechanism is known as Invoice Discounting. This payment mechanism essentially accelerates cash flow from customers to sellers. The Finance Company/Investor earns money both from Interest Rate charged on the short term loan (interest rate is much higher than normal rate) and from a monthly maintenance fees in order to maintain this Invoice Discounting agreement. In simple words, Invoice Discounting is a very short term loan facility for seller by third party (financer).
Incoterms (Incoterms) Incoterms are internationally established and accepted trade terms (import and export of goods). The Incoterms were published by International Chamber of Commerce (ICC). Almost all world trade now follows ICC established Incoterms for clarity and transparency in terms
Read More... of business i.e. (responsibility of seller, responsibility of buyer, payment terms etc). Incoterms are used for local, national and international trade transactions. Incoterms are revised and published by ICC from time to time. Some of the most popular Incoterms include CIF, CFR, EXW, FOB etc
Incoterms - DAT (Delivery at Terminal) Seller bears all financial risks and responsibility to bring the goods to Port of Destination. Unloading goods at Port of Destination is also the sole responsibility of the seller.
Incoterms - CIP (Carriage and Insurance Paid) Seller delivers goods to the pre-agreed place of destination in proper condition, as per contract. Under CIP, Seller also ensures for insurance cover for loss of or damage to goods during carriage. Under CIP, seller is required to obtain insurance only on minimum cover. Buyer can however elevate the Insurance Protection by making his own extra insurance protection arrangements.
Intangible Asset An Intangible Asset is an asset which is virtual and is not physical in nature. Assets like Patents, Copyrights, Trademarks, Brand Equity etc are known an Intangible Assets.
Initial Public Offering (IPO) / Public Offerin IPO is the Business Exercise/Activity of offering Stock (shares) of a Company to the public. IPOs are usually issued by companies which are seeking capital to expand (scale up). The IPO issuer obtains the assistance of an underwriting firm, which helps determine what Type of Security, Best Price Offering, Number of shares to be issued and Timelines for Market Launch of IPO.
Internal Rate of Return (IRR) Internal Rate of Return (IRR) is also known as Discount Rate. IRR is a Financial Metric which is used to evaluate the attractiveness or profitability of a Project or Investment. i.e. Rate of Return on an Investment or Project. IRR is a discount rate which makes the
Read More... Net Present Value (NPV) of all Cash Flows to zero. By calculating IRR, we can calculate the Actual Return which shall be provided by the investment/project’s Cash Flows. If the projected Rate of Return is higher than desired by the company, then it’s a worthwhile investment/project.
International Business Company (IBC) International Business Company (IBC) is an Offshore Company formed under the laws of some jurisdictions as a Tax Neutral Company which is usually limited in terms of the activities it may conduct in, but not necessarily from, the jurisdiction in which it is incorporated.
International Business Corporation (IBC) International Business Corporation (IBC) is an Offshore Company formed under the laws of some jurisdictions as a Tax Neutral Company which is usually limited in terms of the activities it may conduct in, but not necessarily from, the jurisdiction in which it is incorporated.
Life Insurance Life insurance is protection against Financial Loss that would result from the premature death of an insured. The beneficiary (s) receives the Insurance Proceeds and is/are safeguarded from the adverse Financial Impact of the death of the Insured. The payment amount and frequency is subject to Agreement between Insurance Company the Individual Insured.
Liquidity Liquidity is a measure to express the financial ease with which a company or organisation can fulfil its financial obligations be it operational, debt or other. Readily Available Cash is the most liquid asset. Liquidity is also bolstered if the available free assets of a company or organisation can be easily and quickly sold or purchased in the market, without any adverse affect on the current asset value.
Market Market is a platform which permits/facilitates Buyers and Sellers of all kinds of Goods/Products and Services to Meet/Interact in order to exchange their Specific Product or Service via an organised/established exchange mechanism
Marginal Utility Marginal Utility is a term widely used and measured in consumer economics and consumer psychology. can be defined as the "additional utility/additional satisfaction/additional benefit/additional value" which a consumer obtains after using a specific product (good) or service. Marginal Utility can be measured and is expressed in the form of percentage (%).
Market Capitalisation (Market Cap) Total Market Value (Total Dollar Value) of the Company's Outstanding Shares
Mezzanine Financing Its is a hybrid form of financing (Debt and Equity Financing). Via Mezzanine Financing, the lender/financer has the legal rights to convert its lending into an Ownership/Equity Structure. This is only possible in case the borrower defaults on debt servicing. There are multiple variants of Mezzanine Financing available in the market. In case of default by borrower, sequence of money settlement is as follows : Senior Debt, Senior Subordinated Debt, Subordinated Debt, Mezzanine Debt and finally the owner's own equity. Mezzanine lender is very close to being last to get paid in case of default by borrower.
Mutual Funds (MF) Pool of Funds collected from multiple investors for the purpose of high return investment in securities (i.e. bonds, insurance, stocks and similar assets). Mutual Funds are managed by specialists commonly known as Mutual Fund Managers. Investing in Mutual Funds is easier than investing (buying and selling) in stocks and managing stock return's by an individual. Mutual Funds usually provide good returns in medium to long term time basis.
Majority Shareholder Individual or organisation owning more than 50% stake in a company or institution. Because of having controlling stake, a majority stakeholder has the capability and legal powers to have significant influence in the business operations and strategy.
Merchandising Promotion of Goods and/or Services which are available for Retail Sale. Merchandising also includes Quantity Calculation, Product/Service Pricing, Display Designs, Marketing & Branding Strategies, Sales Network Establishment etc.
Monopoly In a Monopolistic based market structure, there is only one dominant player in the market to provide a specific product or service. The single player usually charges self created price for its products or services. There is no competition in a monopolistic market system. Prices for products or services are higher than oligopoly and perfect competition market structure.
Municipal Bonds Municipal Bonds are Debt Instruments which are issued by State or Local Government. Municipal Bonds are used to fund Urban Infrastructure Projects. In some instances, Municipal Bonds are Exempt from Central, State and Local Tax preview. However, some municipal bonds may be subject to Alternative Minimum Tax.
Non Performing Asset (NPA) Non Performing Asset (NPA) is a classification of those Loans which are in default on scheduled payments of either Principal Amount or Interest Amount. Usually, a loan is categorised as NPA when loan payments have not been made for a period of 90 days.
Net Profit Margin Net Profit Margin is a comparative metric between Net Profits and Total Revenue. It is typically expressed as a percentage. It can also be described as How Much Component of Each Rupee of Revenue is Profit. (Net Profit Margin = Net Profit / Total Revenue)
Net Profit Margin Net Profit Margin is a comparative metric between Net Profits and Total Revenue. It is typically expressed as a percentage. It can also be described as How Much Component of Each Rupee of Revenue is Profit. (Net Profit Margin = Net Profit / Total Revenue)
NRE Account (Non-Resident Rupee Bank Account) An NRE account can be opened by any person who is residing outside India. NRIs having NRE account in India are permitted to hold and maintain foreign currency earnings in Indian rupees. All the funds, along with the accrued interest, are freely repatriable; moreover the interest earned is not taxable in India. NRE Bank Account is "Freely Repatriable" (Principal and Interest Earned).
Read More... NRE Bank Account is Tax Free i.e. no income tax, gift tax, wealth tax etc). Any income earned in India by a NRI/PIO/OCI cannot be deposited into a NRE Bank Account. Such income has always to be deposited into a NRO Bank Account. NRE Bank Account can also be jointly held (but only with a NRI and not an Indian Citizen). One should choose NRE Bank Account, if the primary objective is to park foreign earnings in India (converted to Indian Rupees i.e. INR). Such funds are easily available as liquid funds and are easily repatriable, as mentioned before.
NRO Account (Non-Resident Ordinary Bank Account) NRO Bank Account is a special type of Savings Bank Account for Non Resident Indians (NRI's). In a NRO Bank Account, NRI's can maintain their Indian earnings (from sources like Rent, Pension, Dividends etc) in Indian Rupees (INR).
Read More... NRO Bank Account enables NRI's to operationalise low hassle money transfers, higher interest rates. NRO Account is primarily for NRI's who have earnings generated in India. NRO Bank Account can also be opened together with Resident Indian (e.g. a close relative etc). Credit from outside India into NRO account, does not attract tax. NRO Bank Account can also be opened by a Person of Indian Origin (PIO) or Overseas Citizen of India (OCI). NRO Bank Account has restricted Funds Repatriability.
National Company Law Tribunal (NCLT) National Company Law Tribunal (NCLT) is a quasi-legal body in India. It was established under Companies Act 2013. It works in cases related to legal corporate matters.
National Pension Scheme (NPS) National Pension Scheme is a Voluntary Pension Scheme for all Indians. It is regulated by Pension Fund Regulatory and Development Authority (PFRDA), enacted by act of Parliament. NPS is an attempt by Govt of India to create and enhance a pensioned society in India for fiscal sustainability. Any Indian Citizen, whether Resident or Non-Resident can become a part of National Pension Scheme (NPS).
Net Interest Income (NII) Net Interest Income is a financial term which defines the difference between the Total Interest received from Assets minus Total Interest paid on Liabilities, in a specified time period.
Oligopoly In an Oligopoly based market, only a small number of companies have dominant (majority) market share. Oligopoly is different from Monopoly, however in an oligopoly, there are more than one players in the market fray.
Operating Cost Expenditure related to operations and administration of any business on a daily basis. Operating Cost is purely restricted to maintenance of Business Operations. (E.g. Accounting Fees, Legal Fees, Sales & Marketing Fees, Travel Expenses, Office Supplies, Rental Payments, Utilities Bills, Fuel Expenses, Salaries, Repair and Maintenance Charges etc). Operating Cost = Cost of Goods Sold - Operating Expenses
Operational Expenditure (OPEX) OPEX. They are fully deductible in the year in which OPEX were incurred. E.g. Inventory, Equipment Purchase, Rent, Payroll, Marketing Expenses, R&D Expenses etc. OPEX is majority expense component of any company.
Overdraft (OD) Overdraft is a financial lending facility provided by the bank/lender to its clients. Overdraft allows the client to withdrawing money (credit from lender), even when there are no funds in the account. Overdraft allows client to take some additional capital on credit for a short period of time to cover immediate capital requirement. Overdraft facility is widely used by traders and companies. Overdraft Limit usually depends upon your business performance, working relationship with the lending institution, credit ranking etc
Perfect Market Perfect Competition is an ideal and most stable and mature market structure. In a monopolistic market structure, for every product or service which is offered to a target market, the price is not dictated by the companies but by market forces of demand and supply. Further, the prices offered for various products or services do not have much variance. All companies have small market share and no company has majority market share. All companies have to compete for market share and customer loyalty.
Par Value (Nominal Value / Face Value / Stated Value) Par Value is also known as Face Value or Maturity Value. It is the amount which the issuer agrees to pay at the time of maturity of the asset. Par Value is a term which is used mostly in the financial markets for shares, bonds etc. It is the stated value of the asset, as is mentioned on the asset certificate.
Permanent Account Number (PAN) In India, PAN number records all Financial Transactions for a Specific Individual or an Organisation.
Portfolio Portfolio is the group of structured and well defined Financial Assets i.e. Stocks, Bonds, Cash Equivalents. Portfolio can belong to an Individual, Investor or a Company
Profit & Loss (P&L) Statement P&L is a company's financial statement which details about Total Revenue, Total Cost and Total Expenses incurred by the company during a specific time period (usually Quarterly, Six Monthly, Annually). P&L Statement is amongst the three major financial statements which a company must maintain on a continuous basis. Other two being Income Statement and Balance Sheet.
Price Earnings Ratio (P/E) P/E Ratio is used for Company Valuation. I measures the Current Share Price relative to Earnings Per Share (EPS). P/E = Market Value per Share/Earnings per Share
Preferred Stock (Preferred Shares/Preference Stock/Preferreds) Preferred Stock is a class of stock/shares. Holders of Preferred Stock receive their respective dividends before the holders of Common Stock. This is the strategic advantage of Preferred Stock. A preferred stock has upper (ahead of) claim on the company's Assets and Earnings. Preferred Stock Holders/Owners cannot vote inside the company.
Price Elasticity of Demand It is the measure of relationship between a Change in the Quantity Demanded of a specific good/service w.r.t. change in its price. Price Elasticity of Demand = (% Change in Quantity Demanded)/(% Change in Price)
Price Target Predetermined (Projected Beforehand by the Investor) Price Level of a Financial Security if and when achieved, shall lead to highest (best) possible outcome for the investor. At this stage, the investor exits the ownership of the stated Financial Security to obtain maximum reward.
Portfolio Portfolio is the group of structured and well defined Financial Assets i.e. Stocks, Bonds, Cash Equivalents. Portfolio can belong to an Individual, Investor or a Company
Public Sector Undertaking (PSU) Public Sector Undertaking (PSU) are also known as Public Sector Enterprise (PSE). These are companies which are owned (100% or majority stock) and operated by Government of India. PSU's can further be sub-classified into Central Public Sector Enterprises (CPSE), Public Sector Banks (PSB) and State Level Public Enterprises (SLPE). The product pricing, service rates of PSU are priced with Public Welfare and Nation Building a topmost priority. E.g. Indian Railways, India Posts, ONGC, Bharat Petroleum, Hindustan Petroleum, Defence Undertakings, Nationalised Banks etc. The audit of PSU's is undertaken by Comptroller and Auditor General of India (CAG).
Quantitative Easing (QE) Quantitative Easing (QE) is a process which defines the submission/entry/introduction of new additional money into the country's banking system by the respective central bank. It is a way of stimulating the economy. Quantitative Easing increased the money supply in the country's banking system. Usually Central Banks buy Govt Bonds, Assets etc with new money, which is further pumped into the economy to enhancing Business & Retail lending to boost economic activity. The biggest risk of Quantitative Easing is that this process can lead to rise in inflation.
Revenue Bonds Revenue Bonds are also Municipal Bonds. However, Revenue Bonds are specifically earmarked for a specific project. Revenue Bonds are permitted by SEBI.
Risk Averse Risk Averse is a term used for the Investment Strategy of choosing a safe investment with similar or lesser returns than a comparatively riskier investment decision but with higher returns expected.
Recurring Deposit (RD) / Recurring Deposit Account Recurring Deposit (RD) or Recurring Deposit Bank Account is a unique form of Term Deposit facility offered by Banks in India. Every month, the RD account holder has to deposit a pre-fixed amount of money into the RD Bank Account. In lieu for this deposit commitment, Banks in India offer the customer (depositor) a decent/higher amount of interest rate.
Read More... The account holders can choose the amount of money to be deposited into their bank accounts on a monthly basis, but it has to be consistent and timely deposit, in order to avail the higher interest rate facilities. Having an RD Account also motivates the account holder to mandatorily deposit money in the bank account, thereby ensuring a systematic and substantial savings in medium to long term basis. The interest rate, once fixed does not change during the time period. On RD account maturity, the account holder gets a lump sum amount which includes the principal (regular periodic investments) and the interest rate (higher than normal) earned on the principal amount.
Repurchase Agreement (REPO) Repurchase Agreement in the sale of securities with a commitment to purchase the securities back after some (pre-specified) time at a higher price.
Return on Equity (RoE) Total Amount of Net Income returned as a percentage of shareholders equity. RoE is a good metric to measure the profitability of the company, in regards to the money invested by investors/shareholders.
Refinancing (Refinance) Refinancing is a process under which an existing debt is replaced with another debt obligation having different and usually better terms of debt servicing. Refinancing happens when the Entity (Business or Government) or an Individual is not under financial distress. If an Entity undertakes Refinancing under financial distress, it is known as Debt Restructuring. Debt Refinancing is a very common method of obtaining Debt Relief. It is done for better interest rates, consolidate multiple debts into one debt, reduce monthly repayment amount, enhance operational liquidity. In simple words, Debt Refinancing is revision of payment terms to be in a better position to service debt.
Regional Comprehensive Economic Partnership (RCEP) RCEP is a proposed and under consideration Free Trade Agreement (FTA) between countries of ASEAN and following countries (Australia, China, India, Japan, South Korea and New Zealand). RCEP was launched in 2012 and is at the final stages of finalisation.
Return on Assets (RoA) Return on Assets (ROA) is a financial indicator of the company's profitability in regards to the company's Assets. (Return on Assets = Net Income / Average Total Assets). RoA is always expressed in the form of Percentage (%). RoA is a financial indicator (Ratio), wisely used by investors to gauge, how profitably the company leverages its assets.
Risk Adjusted Return (RAR) In financial world, Higher the Financial Return, more is the Financial Risk. RAR measures how much risk (financial risk) is involved in obtaining a pre-specified return on investment. RAR is a very important metric for investors before deciding upon whether to make a specific investment or not, based on the risk calculations. RAR can be applied on all forms of securities. Risk is categorised in following categories like Alpha, Beta, R-Squared, Standard Deviation, Sharpe Ratio etc
Revolver The term "Revolver" is very commonly used term in Credit Card business. When a Credit Card holder does not pay the complete debt on his/her credit card, the remaining debt is carried forward to the next billing cycle. The term "Revolver" is used for such clients. In the Credit Card business, most of the clients carry forward debt to next billing cycle and are therefore known as Revolver. Such clients are a massive source of revenue for Credit Card companies. The term revolver comes from the term revolving debt.
Revolving Credit (Revolving Line of Credit) As the name suggests, Revolving Credit is a type of Credit Mechanism, wherein the Credit Amount is automatically renewed/restored, the moment the debt amounts are paid off, by the borrower. In operation terms, Revolving Credit is a type of "Line of Credit". A borrower can choose to pay off all the debt i.e. 100% debt paid at the end of the time cycle or can pay off the debt partially and the remaining debt shall be carried forward to the next time cycle. The service charge in Revolving Credit, is based on the amount of pending debt.
Risk Adjusted Return on Capital (RAROC) Risk Adjusted Return on Capital (RAROC) is an enhanced metrics for Return on Investment (ROI). Return on Investment (RoI) + Risk Assessment Return (RAR) = RAROC. RAROC takes into account the Risk Factor, while calculating Return on Investment. It is a more comprehensive metric for an investor, while making an investment decision.
Reward Risk Ratio (RRR) Risk Reward Ratio (RRR) is the relationship between Risk involved in an Investment w.r.t. amount of Return (Financial Reward) from the same investment. In general, Greater the Risk, Greater the Reward. RRR is a benchmark ratio which is used when assessing the DoAbility of a particular investment. RRR Risk Reward Ratio = (ExpectedReturn - RiskFreeReturn)/Beta.
SARAFAESI Act In India, the SARAFAESI Act is also known as Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This law primarily permits secured creditors (Banks and other Financial Institutions) in India to action residential or commercial property to recover dues w.r.t. secured loans. This law does not apply to unsecured loans.
Savings Account (Savings Bank Account) Savings Account (Savings Bank Account) is the most popular type of Bank Account used by individuals in India. A savings account gives regular interest payments on the principal deposit amount. The rate of interest varies from Bank to Bank.
Read More... Nowadays, banks also provide Auto Sweep Facility on Savings Bank Accounts. Savings Account is the most basic type of Bank Account. A savings account does not allow limitless transactions. Overdraft facility is also not available in Savings Bank Account. The minimum account opening balance and account maintenance balance for a Savings Bank Account is also very low. The main reason for opening a Savings Bank Account is to encourage individuals to save their money/regular income in a structured way.
Solvency Solvency is a financial term which describes the ability of a company/institution to pay back the present debt i.e. Ability to honour its financial obligations. Solvency can also be described as the degree to which the company/institution owns assets in excess of its current financial liabilities. This assures capability of successful debt repayment.Solvency enables a company/institution to keep going i.e. stay in commercial relevance. Solvency is measured as a ratio of assets to liabilities.
Solvency Ratio (Measure of Solvency) Solvency Ratio = (Total Current Assets / Total Current Liabilities). Greater the Solvency Ratio, higher the chances the company shall honour (service) the debt.
Security Security is a commonly used Financial Instrument in the Financial World. It represents "Ownership Position" in a Publicly Traded Company. The term Security can also be referred to as the Creditor's Relationship with Government or the Company. Security is a term used to describe a broad range of Investment Instruments like Stocks, Bonds, Mutual Funds, Municipal Bonds etc.
Secured Loan As the name suggests, Secured Loan is a type of loan wherein the Borrower pledges an asset in lieu of which the lender provides immediate capital (as loan). Secured Loans are protected by an asset or a collateral. Home Loans, Car Loans etc are usually Secured Loans.
Startup Accelerator Startup Accelerators are also known as Seed Accelerators. Startup Accelerators are fixed term mentorship programs run by professionals to facilitate sustainable growth of StartUps. Startup Accelerators can be privately or/and publicly funded. These can also be Industry Specific e.g. FinTech Accelerator, MedTech Accelerator etc. Here, a seed investment in selected StartUps is made (in exchange for Equity). There are fixed guidelines and timelines for selected StartUps to graduate to the desired levels. The primary value of StartUp Accelerators is in funding, mentorship, connections, process and technology benchmarking.
Statutory Liquidity Ratio (SLR) SLR is a monetary policy instrument. The Reserve Bank of India (RBI) has mandated that all commercial banks in India must maintain a minimum amount of cash and assets in stock before the commercial banks can start lending to customers in India. This is measured via Statutory Liquidity Ratio (SLR). SLR is the Proportion of Deposits which commercial banks are required to maintain with them in the form of liquid assets in addition to the Cash Reserve Ratio. The word "Statutory" means that it is a legal and mandatory requirement and "Liquid Asset" means assets in the form of Cash, Gold and Approved Securities (Government Securities). In simple words, The Ratio of Liquid Assets to Net Demand and Time Liabilities (NDTL) is known as SLR.
Stop Order (Stop, Stop-Loss Order) Stop Order is an order to buy or sell a stock, when it has reached a pre-determined price level (known as Stop Price). When the pre-determined price is reached, the stop order becomes market order.
Simple Interest (SI) Simple Interest Charge on Loan. Simple Interest (SI) = Principle Amount of Loan (P) x Interest Rate (R) x Time in Years (T)
Simple Moving Average (SMA) Simple Moving Average (SMA) is a metric used in Online Trading. It is amongst the most popular analysis tool used by Online Traders. SMA can indicate potential Sell & Buy options. It is calculated by adding a "Series of Prices" and dividing the sum by total number of Data Points.
Small Cap Small Cap is market term used to segment various companies having relatively Small Market Capitalisation (i.e. Market Value of its Outstanding Shares).
Stock Split Stock Split is always a Company Management (Board of Directors) Strategic Decision. It includes increasing the Number of Outstanding Company Shares by issuing additional Shares to Existing Shareholders. Net Value of Share Holding with a Shareholder remains same.
Sunk Cost In financial and economic terms, any Investment/Expenditure on an initiative/project which has already been done and which cannot be recovered is known as Sunk Cost. Sunk cost is a past cost and is not related to future expenditures or expenses. Sunk Cost can also be described as the money which has already been spent and lost. Sunk Cost is also known as Stranded Cost. Some examples of Sunk Cost include expenditure on Training of Employees, Market Research Study etc
Tax Mandatory (Compulsory) Charge/Fee levied upon income generating Individuals, Institutions, Organisations and Companies is known as Tax. It is the revenue from Tax which translates into Public Welfare Funds, used by Local, State and Central Government to finance and execute developmental and public welfare activities in a specified geographic area and in a specific time frame. Avoiding paying "applicable" tax is a legal crime. In India, Individuals have to pay Income Tax every year. Companies have to pay Income Tax and Indirect Tax (GST) to the Government. Tax can also be defined as a mandatory contribution (mandatory financial charge), payable to Government. Tax can be levied only by Government on profits, transactions, income, capital gain, value addition etc. Taxes for commercial enterprises are applicable on services and goods.
Tax Refund Tax Refund is a term used for the amount of money which the Government pays back to the Individual/Company, when the Actual Tax Liability is Less than the Amount of Tax Deposited
Tax Clearance Certificate Tax Clearance Certificate is a Legal Tax Document provided by Government Tax Authorities to taxpayers (Individuals and Business Entities), certifying that the taxpayer has paid all Taxes due and/or there is no tax liable, on date. Tax Clearance Certificate helps build Fiscal Credibility in the market and is advantageous for getting Credit, Grants etc and participation in Government Projects in the future.
Tax Evasion Tax Evasion refers to Non Payment and/or Under Payment of Tax. Tax Evasion is an illegal activity. Tax Evasion can be by an Individual or an Entity (Business, Institutional etc). It is punishable offence via Civil and Criminal penalties.
Tax Free Zone (FTZ) Tax Free Zone is a Special Economic Zone. Tax Free Zones are specially designated geographic zones, wherein any commercial activity like landing, storing, manufacturing, assembly etc are not subjected to custom duty. Tax Free Zones are usually located in the proximity of Seaports, Airports and International Borders. Inside the Tax Free Zones, indirect taxes are also not applicable.
Tax Haven A Country, Independent Geographic Area or Jurisdiction wherein Tax Liability is Zero or Lowest. Tax Havens usually provide no to little information about financial transactions of Taxpayers to Foreign Tax Authorities. Many People or Business Entities from across the world park funds/wealth is Tax Havens to take advantage of Low (Negligible) Tax Rates and other advantages.
Tax on Tax The process of charging Tax on Tax Inclusive Prices of Products and Services
Tax Refund Tax Refund or Tax Rebate is a refund on Tax Liability. Tax Refund is possible when Tax Payment is more than the Payable Tax. Tax Refund = Tax Payment - Tax Payable for a specific assessment period.
Taxable Interest If you earn interest from any income, you will be charged tax on the same. Interest Income earned by individuals and business entities is also subject to Taxes. Taxpayers are required by law to report Interest Income on Tax Return.
Taxable Period Time Period, within which the tax is computed on the Income Generated.
Taxable Year 12 months time period, wherein tax is computed on Income Generated.
Taxation at Source Taxation at Source is a tax collection strategy, wherein Tax is Deducted at the point of Transaction/Income. In either words, it is called Tax Deducted at Source (TDS). The person liable to make the payment like salary, commission or any other kind of professional fees is mandated by law to deducted certain percentage of the amount as Tax Deducted at Source (TDS) and deposit the same amount with the Government.
Taxpayer Identification Number (TIN) TIN Number is used for the identification of Taxpayers in India and across the world. It is a number which can be issued both to individuals as well as organisations/business entities. TIN Number is used by taxpayers as well as by governments while paying tax and assessing tax and for specific correspondence between taxpayers and government authorities.
Transaction Taxes Levy applied on specific type of Monetary Transaction for a specific purpose. Transaction Tax is not levied on Entity or Institution. It is levied on Monetary Transaction.
TUF Schemes (TUFS) TUF stands for Technology Upgradation Funds for Modernisation, Expansion of Existing Units and for setting up of new units with benchmark level of technology
Tax Deducted at Source (TDS) As the name suggests, Tax Deducted at Source (TDS) in a form of indirect taxation. It is managed by Central Board of Direct taxes (CBDT), Government of India. Under TDS, tax is deducted from an Individuals Income. TDS Rule says that the payee/employer must deduct TDS Tax and then pay the balance amount to receiver/employee. TDS is applicable for Salary, Commission, Professional Fees, Interest, Rent etc.
Taxable Income Taxable Income is the component of income, which is used to calculate the tax of an individual or a company. The definition of taxable income can vary from one place to another. Taxable Income is broadly calculated as Gross Income - Deductions. Taxable Income broadly contains Salary, Wage, Contractual Earning, Capital Gain, Salary Bonus, Performance Bonus, Fiscal Incentive etc
Term Loan A Term Loan is a loan which must be paid back in a fixed amount of time and it must be repaid in regular instalments. Term Loan duration can vary from 1 year to 30 years. Rate of Interest which is charged in Term Loans can be fixed or fluctuating, as per market condition. Term Loans are usually availed by small businesses. Term Loans are secured loans. Term Loan can be given to individuals or businesses.
Tola Tola is a unit of measurement for measuring the weight of gold in India and adjoining South Asian countries. Tola is also known as Tole or Tolah or Tolaka. 1 Tola = 11.66 grams (Approx).
Total Return Swap (TRS) RS is a unique way of Financing. TRS is a Financial Agreement under which, both Market Risk and Credit Risk of an asset are both swapped. Under this agreement, one party makes payment at a set rate (fixed rate or variable rate) and the other party makes payments based on the return on assets (reference index). The asset is owned by the party receiving the set rate payment.
Two and Twenty It's a Financial Compensation Formula for Hedge Fund Managers. Compensation of Hedge Fund Managers = (1) 2% of Total Asset Value as Management Fee + (2) 20% of Profits Earned on Hedge Funds
Turn Around Time (TAT) Time taken to fulfil a request or achieve an objective. Turn Around Time = Finish Time - Start Time. Lesser the Turn Around Time, better it is. Turn Around Time can also be defined as the Time Period to complete a Process Cycle.
Tax Liability (Tax Obligation) Tax Liability is also known as Tax Obligation. It refers to the amount of tax which is unpaid yet (as on date) and is legally owed to the Tax Authority by an Individual or an Entity (Business Entity, Institution, NGO, Trust etc). Tax Authority could be local government body like Municipal Corporation, State Government or Central (Federal) Government. Tax Liability = Taxable Event x Tax Rate
Tax Authorities Tax Authority refers to the Government Body which is mandated with the task to Tax Assessment, Collection and Management. Income Tax Department (CBDT) for Direct Taxes and Central Board for Excise and Customs (CBEC) for Indirect Taxes are the two Central Government Agencies in India.
Tax Avoidance Tax Avoidance means Fiscal Tax Plan in order to minimise Tax Liability without breaking any Law of the Land. Tax Avoidance is not exactly Tax Planning. In Tax Avoidance, one looks for Legal Loopholes in the system to avoid paying tax.
Tax Compliance Tax Compliance is a term which refers to the process of Honest Income Declaration, Correct Tax Assessment, Tax Submission to relevant Government Authority in prescribed formats and within prescribed dates (Deadline). Tax Compliance is the duty of Taxpayers (Individual and Entities).
Tax Declaration Tax Declaration is basically the Tax Return (Income Tax Return as well as GST Tax Return) by Taxpayer to the Tax Authorities.
Tax Exile Worldwide, come individuals decide to live in countries which has lower tax rates (E.g. Monaco, Bahamas etc) than their native countries. This is done intentionally to avoid paying extra or higher taxes in their country of origin. Such a decision to live in another country than native country, exclusively for this purpose of lower tax rates is a voluntary decision and is known as Tax Exile. The concept of Tax Exile is prevalent mostly amongst High Net Income (HNI) Individuals, worldwide.
Tax Holiday Tax Holiday can be defined as a specific period of time within which Government removes/relaxes specific taxes usually on Business Entities in order to give them incentive to establish manufacturing unit, service office, bring investment, provide jobs etc within the jurisdiction of the specific government. Tax Holiday is also provided to increase consumption of a specific product or increase subscription of a specific service.
Tax Planning Tax Planning is the process of ensuring Tax Efficiency for Individuals and Business Entities i.e. Make best use of available Tax Holidays, Tax Exemptions, Rebates, Deductions etc to minimise Tax Liability in a given financial year. Tax Planning is a subset of Fiscal Planning and includes things like Income Timing, Expenditure Timing etc in order to maximise savings.
Tax Sparing Credit As the name suggests, Tax Sparing is a special category of Double Taxation Relief in Bilateral Tax Treaties. Tax Sparing activities are important for developing countries who have to attract foreign investment. Herein, company which invests in a developing country is provided Tax Exemption by Host Country (to which the company belongs), provided the two countries in contention already have a double taxation treaty in place. The Host Country spares (forgoes) taxation on the company, which it would have had to pay otherwise in the first place.
Tax Threshold Tax Threshold is the maximum level of income (Salary, Interest, Capital Gain, Business Profit etc) beyond which Income become Tax Liable (i.e. Tax Applicability starts).
Tax Treaty (Double Taxation Agreements DTA's) Tax Treaty is name given to bilateral agreement between two countries to structure taxation issues amongst the two countries (e.g. Sharing tax data, tax payer data etc), Tax Exemptions, Tax Sharing and sort out subsequent problems if any (e.g. Double Taxation).
Taxable Base Taxable Base can be understood as the "Amount or Size of Business Activity or Size of Asset" on which Tax (Tax Rate) is applicable. E.g. Corporate Income, Personal Income etc
Taxable Event Any activity, event, process, occurrence or transaction which leads to Tax Liability, is known as Taxable Event. Taxable Event can occur in Manufacturing as well as Services Sector. E.g. Sales and Purchase of Goods and Services, Receiving Salary, Receiving Payment, Receiving Interest, Dividends, Capital Gains etc
Unsecured Loan A loan which is not backed by any asset but only by the credit worthiness of the borrower, is known as Unsecured Loan. It is sometimes also termed as Signature Loan.
Unit Linked Insurance Plan (ULIP) ULIP is a unique product offered by Insurance Companies in India under which the client obtains Insurance and Investment in the Financial Market under one product. There are numerous Pros and Cons associated with ULIP Schemes and investors must exercise individual and informed analysis before taking a final decision.
Unitary Tax System (UTS) Under the Unitary Tax System, profits of the various branches of an entity are calculated as one. It is widely used by Multinationals to gauge Global Tax Liabilities.
United States Dollar (USD) Currency of United State of America (USA). Widely used in the world as Official Bill (Tender) of Exchange.
Utilisation Certificate Utilisation Certificate is a proof of proper utilisation of funds given by client/employees etc to the financer or audit team for a specified purchase or service.
Unified Payment Interface (UPI) Unified Payment Interface (UPI) is a financial payment system proposed by Government of India wherein money can be transferred from one bank account to another bank account using an individual's mobile phone. Via UPI interface it is also possible to pay directly from an individual's personal bank account to merchants bank account.
Read More... Under UPI payment mechanism, there is no need to type-in the IFSC Details and other details (like in Credit Card / Debit Card Transactions). UPI Interface has been specifically designed to simplify the payment mechanism. UPI is a very safe and secure payment interface. All banks in India are integrated to receive and transfer payments via UPI Interface. There is a Rs. 1 Lakh upper limit on every transaction.
Unicorn In the financial and startup world, Unicorn refers to a startup which has received the benchmark level of USD ($) 1 Billion in market value or more.
Vesting Vesting is a process/scenario via which an employee gets rights over assets (like Stock Options, Retirement Plans etc) pledged by the employer under specific (case-to-case) conditions. Vesting Rights are normally non fortifiable. Vesting benefits can be immediate as well as build up over a period of time.
Value Added Tax (VAT) Value Added Tax (VAT) in India is the Tax on the Amount of Increased Value of a Product or Service. VAT for products may be levied for various ValueAdd stages like Production Stage, Distribution Stage, Final Delivery Stage etc. VAT is an indirect form of taxation and is levied on customers or end users. VAT is a multi-stage Tax.
Value at Risk (VaR) Value at risk (VaR) is a statistical metric which is used to quantify the "Level of Financial Risk of an Investment Portfolio for a specific Time Period".
Value Investing Value Investing is a business investment strategy, wherein Stocks (Securities) are picked up from the market, which are currently trading at a value lesser (lower) than their true (intrinsic) value.
Venture Capitalist Venture Capitalist, as the name suggest, is an individual (professional investor) who invests money/resources/assets/capital in a business venture. The primary objective of a venture capitalist is to provide much required capital (financial boost) to the company to either bring a product/service to market or to scale up the business in return for higher than market returns at an appropriate later stage. The investment made by a Venture Capitalist is primarily in the form of Equity Investment.
Vesting Bonus Vesting Bonus is the specific bonus which is provided by the insurer to the policy insurer, after checking (evaluating) the assets and liabilities.
Volatility Volatility is a financial term which measures the risk of a security. More the variation in the value of financial security w.r.t. time, more the volatility. Volatility is not a desired characteristic.
Venture Capital (VC) Venture Capital can be defined as Private or Institutional Investment into StartUp or Early Stage company. There is always high risk involved in investing in a small, new business. However, the returns on a successful investment are also very lucrative for investors. The individuals or Institutions which invest in StartUp/EarlyStage companies are called Venture Capitalists. Venture Capital is an Equity Investment.
Voter ID Card An Indian Voter ID Card is an Individuals Documentation Card provided by the Election Commission of India, Government of India. Obtaining a Voter ID Card is the right of every Indian Citizen. It helps an Individual to cast his/her vote in all forms of elections. Voter ID Card also works as a legal ID authentication document, age proof and address proof document, which is accepted by all banks, financial institutions and government departments across India.
Working Capital Capital (Money) which companies, institutions etc require to conduct day-to-day business is known as Working Capital. Working Capital = Current Assets - Current Liabilities. Working Capital is a good measure of the company's short term Fiscal Health, Liquidity and Operational Efficiency. Working Capital can also be termed as "Net Liquid Assets", available with the company.
Warranty Written Assurance given by manufacturer to customer giving commitment for repair and/or replacement of product, in case of defect. Warranty is for a specific period of time.
Watch Portfolio Watch Portfolio is a term used for those stocks whose performance is being closely watched by the potential investor. The investor has not spent any money on this portfolio.
Whole Life Insurance A unique Insurance Policy, wherein Life Insurance Policy is guaranteed for the insured individuals entire lifetime, provided the individual pays all premiums as contracted. It is a binding contract between the insured individual and the insurer that the insurer will pay all Death Benefit to the policy's beneficiaries when the insured individual dies. Whole Life Insurance provides for an insurance plan which provides for payment of Sum Assured plus Bonuses on the death of the insured.
Workers Compensation Monetary Benefits and/or Medical Compensation provided to employees by the employer in case they are injured during the course of job.
World Trade Organisation (WTO) World Trade Organisation (WTO) is a global regulatory body (Inter Governmental Organisation IGO), which takes care of global trade amongst various countries. It's main objective is to ensure that the Global Trade is Smooth, Fair and Free to the maximum possible level and reduce International Trade Barriers. WTO started on 1st January, 1995.
Wholesale Price Index (WPI) Wholesale Price Index (WPI) is a statistical metric to keep track of changes in prices of wholesale bulk commodities i.e. Primary Articles, Fuel, Power and Manufactured Products ((Total of 697 items i.e. 117 Primary Articles, 16 Fuel and Power Items and 564 Manufactured Products), at the early stage of transaction i.e. before the Retail Level. Prices which are tracked for statistical analysis are Ex- Factory for Manufactured Products, Mandi Price for Agricultural Commodities and Ex-Mines prices for Minerals. WPI is often expressed as a Ratio or a Percentage. WPI is an indicator of the level of national inflation.
World Bank (WB) The World Bank is one of the largest financial institutions in the world. T provides loans and grants to various countries across the world for various sustainable developmental works. The World Bank is based at Washington DC and was formed in 1945.
World Wide Income (WWI) World Wide Income (WWI) also spelt as Worldwide Income is the sum total of all taxable income sources of an Individual or a Company, across the world. Worldwide Income is a term which has increasingly found relevance from Governments worldwide who want to know the Tax Liability of an individual or a company, who might have multiple businesses or income sources across the world in different countries.
Write Down Write Down is a financial scenario wherein the book value of an asset is reduced (downward revision) due to overall market valuation of the asset has gone down. Write Down is usually expressed in terms of percentage comparison or in terms of currency value reduction of the asset. Write Down is mentioned in the company's Financial Statement.
Wilful Defaulters Some borrowers (Individuals and Corporate) who do not service the loan/debt, despite having the financial assets and working capability to repay the loan but do not do so i.e. repay the loan. Such individuals and companies are deemed as Wilful Defaulters. Default means non-payment of a loan availed by the borrower. Wilful Default is when an entity or individual stops paying back the loan, despite the ability to repay it. The categorisation of an Individual or a Company as a Wilful Defaulter is as per RBI (Reserve Bank of India) guidelines.
    According to RBI, a wilful default is deemed to have occurred in any of the following four circumstances:
  • There is default in repayment obligations by the unit (company/individual) to the lender even when it (borrower) has the financial capacity to honour the said obligations. There is deliberate intention of not repaying the loan.
  • The funds are not utilised for the specific purpose for which finance was availed but have been diverted/rerouted for other purposes.
  • Funds have been siphoned off and not been utilised for the purpose for which it was availed. Further, no assets are available which justify the usage of funds.
  • Asset bought by the lenders’ funds have been sold off without the knowledge of the bank/lender.
Yield to Maturity (YTM) Yield of Maturity (YTM) is also known as Book Yield or Redemption Yield. YTM measures annual return to an investor if he or she holds to a particular bond till its maturity.
Yield Interest Rate (YIR) Yield Interest Rate (YIR) is a financial term which refers to the "Actual Rate of Interest" expressed as a Rate Percentage per Annum.
Yen Currency of Japan
Yield Curve Yield Curve is also known as "Term Structure of Interest Rates". Yield Curve is a graph which plots Yields of Similar Quality Bonds against their Maturities, ranging from the Shortest to the Longest. Yield Curve is a graph between Yield and Time for Similar Quality Bonds. The term Yield Curve is of keen interest to Bond Investors. Short Term Bonds are known to offer lower yields. Long Term Bonds offer comparatively higher yield.
Zero Sum Game One Entity/Individuals Gain is equal to the equal loss of other Entity/Individual, so that the net benefits remain same is known as Zero Sum Game. Zero Sum Game can have more than two participants. Zero Sum Game is commonly used in Business Decision Making and Risk Evaluation.