Learn · Glossary

Market words, in plain English

50 terms you'll meet in annual reports, fund factsheets and the news, each explained in a sentence or two.

Search the glossary

Asset allocation: How your money is split between shares, bonds, gold and cash. It decides most of your long-run experience, more than which fund you pick.
AUM: Assets under management: the total money a fund manages. Big is not better or worse by itself, but very small funds can be costlier to run.
Balance sheet: A snapshot of what a company owns and owes on one day: assets on one side, liabilities and shareholders' money on the other.
Bear market: A fall of 20% or more from a recent peak. India has had several since 1992; see the history page.
Benchmark: The index a fund is measured against, such as the Nifty 50 for a large-cap fund. Beating it after costs is the fund's job.
Bond yield: The return a bond pays if held to maturity, as a percentage of its current price. When yields rise, existing bond prices fall.
Book value: A company's assets minus its liabilities: what shareholders would own on paper if everything were sold at balance-sheet value.
Bull market: A long period of rising prices, usually defined as a rise of 20% or more from a low.
CAGR: Compound annual growth rate: the steady yearly rate that would turn a starting value into an ending value over a period.
Capital employed: The total money tied up in running a business: shareholders' equity plus debt.
Cash conversion: Cash from operations divided by net profit. Close to 100% over several years means profits are turning into real cash.
Cash flow statement: The record of cash that actually came in and went out, split into operations, investing and financing.
Contingent liability: A possible future cost, such as a disputed tax or a guarantee, that sits in the notes rather than on the balance sheet.
Debt to equity: Borrowings divided by shareholders' money. Higher debt magnifies both good years and bad ones.
DII: Domestic institutional investors: Indian mutual funds, insurers and pension funds. Much of their money comes from household SIPs.
Direct plan: The version of a mutual fund bought without a distributor. Same portfolio as the regular plan, lower expense ratio.
Diversification: Spreading money across many holdings so no single failure can do serious damage.
Dividend yield: Annual dividend per share divided by the share price, as a percentage.
Drawdown: The fall from a peak to a later low, as a percentage. A 50% drawdown needs a 100% rise to recover.
EPS: Earnings per share: net profit divided by the number of shares.
Equity: Ownership in a company, usually through shares. Also the shareholders' money on a balance sheet.
Expense ratio: The yearly fee a mutual fund charges, as a percentage of your investment, deducted from the NAV every day.
FII / FPI: Foreign institutional or portfolio investors: overseas funds investing in Indian markets. Their buying and selling moves prices day to day.
Flexi-cap fund: An equity fund that must keep at least 65% in shares but may invest across large, mid and small companies in any mix.
Index fund: A fund that simply copies an index, such as the Nifty 50, at low cost, instead of picking stocks.
India VIX: A measure of how much the market expects the Nifty to swing over the next 30 days. Higher means more fear.
Inflation: The rise in prices over time. Investments need to beat it just to keep your purchasing power.
Large cap: The 100 largest listed companies in India by market value, as listed by AMFI twice a year.
Large-cap fund: An equity fund that must keep at least 80% of its assets in the 100 largest companies.
Liquidity: How easily something can be sold for cash without moving its price.
Margin of safety: The gap between what you think a business is worth and the price you pay. It protects you when your estimate is wrong.
Market capitalisation: The total value of a company's shares: share price times number of shares.
Mid cap: Companies ranked 101 to 250 by market value.
NAV: Net asset value: the price of one unit of a mutual fund, worked out at the end of each day.
Operating margin: Operating profit as a share of revenue. Stable margins suggest pricing power.
P/B ratio: Share price divided by book value per share. Most useful for banks and asset-heavy businesses.
P/E ratio: Share price divided by earnings per share: how many years of today's profit you are paying for.
Profit and loss account: A company's income and costs over a year, ending in net profit.
Rebalancing: Bringing your portfolio back to its target mix, for example selling some shares after a rally to buy bonds.
Regular plan: The version of a mutual fund sold through a distributor, with a higher expense ratio that pays their commission.
Repo rate: The rate at which the Reserve Bank of India lends to banks. It steers interest rates across the economy.
ROCE: Return on capital employed: operating profit divided by capital employed. Shows how well a business uses all its money.
ROE: Return on equity: net profit divided by shareholders' money. High debt can inflate it, so read it beside ROCE.
Rolling returns: Returns measured over many overlapping periods, such as every three-year window. Fairer than a single start date.
Sector index: An index of companies in one industry, such as Nifty Bank or Nifty IT.
SIP: Systematic investment plan: investing a fixed amount in a mutual fund every month, regardless of price.
Small cap: Companies ranked 251 and below by market value. Often faster-growing and more volatile.
Step-up SIP: A SIP that increases by a set percentage each year, usually in line with income.
Volatility: How much and how quickly prices move up and down. It is the price of admission for long-run equity returns.
XIRR: The annual return on investments made at different times, such as SIP instalments. The right way to measure SIP performance.

For educational purposes only. Definitions are simplified for clarity; regulatory definitions (for example SEBI's fund categories) can change, so check the latest circulars for exact rules.