Glossary

Alternative Investments

Alternative investments refer to financial assets outside the traditional categories of equity, debt, or cash. They include options like real estate, private equity, hedge funds, commodities, and collectables, often used for diversification and higher return potential, though with higher risk and lower liquidity.

Certificate of Deposit

A certificate of deposit (CDs in short) is a financial instrument issued by banks that offers fixed interest for a specific term and discourages premature withdrawals through penalties.

Credit Default Swap (CDS)

A Credit Default Swap (CDS) is a financial derivative where one party transfers the risk of a borrower defaulting to another party in exchange for periodic payments, providing protection against credit losses on bonds or loans.

Derivatives

Derivatives are financial contracts that derive their value from the underlying asset or security, like stocks, commodities, or interest rates. These financial contracts are mutual agreements between two or more parties that can be traded on the exchanges or over the counter(OTC).

Equity Instruments

Equity instruments are financial tools that give you ownership in a company. When you buy an equity instrument, such as a stock, you become a part-owner of the company. This means you share in the company's profits and losses.

Equity Shares

Equity shares are ordinary shares that represent ownership in a company. They serve as a source of long-term financing for non-redeemable companies and are issued to the general public.

Fixed Income Investing

Fixed income investing means putting money into financial instruments that provide regular returns in the form of interest or dividends over a set period, with the principal usually repaid at maturity.

Floating-Rate Note

A Floating-Rate Note (FRN) is a type of debt security that pays interest payments that fluctuate periodically, usually every three to six months, based on a reference benchmark, such as LIBOR or the US Treasury Bill rate.

Interest Rate Swap

Interest Rate Swaps (IRS) are financial contracts where two parties agree to exchange interest payments on a fixed notional amount for a set period. Typically, one party pays a fixed interest rate, while the other pays a floating interest rate

Liquidity Risk

Liquidity risk is the risk that you won't be able to quickly sell an investment or asset without losing a lot of money.

Listed Shares

Listed shares are stocks of companies that are publicly traded on recognised stock exchanges such as the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange).

Preferred Stocks

Preferred Stock is a kind of stock that has a combination of characteristics of a debt and common stock. It offers fixed dividends and has priority over common stock in the event of asset liquidation.

Provision Coverage Ratio (PCR)

Provision Coverage Ratio (PCR) is a simple way to measure how much money is kept in the form of provisions by the bank to cover bad loans.

Swaps in Finance

Swap is a customised financial agreement where two parties agree to exchange the cash flows or liabilities from different financial instruments. These agreements are typically traded over-the-counter (OTC), meaning they are not listed on formal exchanges.

Swaptions

A swaption (swap option) is a financial derivative that grants the holder the right, but not the obligation, to enter into an interest rate swap agreement at a specified future date.

Treasury Bills

Treasury Bills are short-term debt instruments issued by the Government of India to meet immediate funding needs. They are sold at a discount and redeemed at face value, with the difference being the investor’s return. Available in 91, 182, and 364-day maturities, T-Bills are highly liquid and virtually risk-free.

Yield to Maturity (YTM)

Yield to Maturity (YTM) is the total return an investor can earn by holding a bond until it matures, assuming all interest payments are reinvested at the same rate. It helps compare different bonds and evaluate investment profitability.