India investing and tax glossary

74 terms in plain English, with Indian rules and examples. Switch to the US edition.

A

Alpha: The excess return of an investment relative to a benchmark index. A positive alpha indicates outperformance; a negative alpha indicates underperformance. Alpha is often used to evaluate the skill of active fund managers.Related: Beta, Sharpe Ratio, Risk-Adjusted Return
AMFI NAV: The net asset value per unit of an Indian mutual fund scheme, published by AMFI (the Association of Mutual Funds in India) for every scheme on each business day, usually that evening. Units are bought and redeemed at the NAV, and Indian fund holdings here are valued at the latest AMFI NAV.Related: Mutual Fund, CAS, SIP
Annual Report: A yearly document a listed company publishes on its financial performance, operations and outlook, with audited financial statements, the board's report and management discussion and analysis. In India the Companies Act, 2013 and SEBI listing rules require it, and the company files it with NSE and BSE, where investors can read it.Related: EPS, Free Cash Flow, Fundamental Analysis
Ask Price: The lowest price at which a seller is willing to sell a security. Together with the bid price, it forms the bid-ask spread. The ask price is always higher than the bid price in normal market conditions.Related: Bid-Ask Spread, Liquidity, Market Order
Asset Allocation: The strategy of dividing a portfolio among different asset categories such as stocks, bonds, and cash equivalents. Research shows asset allocation explains over 90% of portfolio return variability, making it the most important investment decision.Related: Diversification, Portfolio Rebalancing, Modern Portfolio Theory

B

Bear Market: A market condition where prices fall 20% or more from a recent high, usually with widespread pessimism. In India the NIFTY 50 and SENSEX are the usual yardsticks. Bear markets have differed widely in length and depth and have historically been followed by recovery, though the timing cannot be known in advance.Related: Bull Market, Drawdown, Volatility
Beta: A measure of a stock's volatility relative to the overall market. A beta of 1.0 indicates the stock moves with the market; above 1.0 means more volatile; below 1.0 means less volatile. Beta is used in the CAPM to estimate expected returns.Related: Alpha, Volatility, Value at Risk
Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security. Narrower spreads indicate higher liquidity and lower trading costs. Market makers profit from the spread.Related: Ask Price, Liquidity, Market Order
Blue Chip: A large, well-established and financially sound company with a long record of reliable performance. In India, blue chips are typically the market leaders that make up the NIFTY 50 and SENSEX, and many of them pay regular dividends.Related: Dividend Yield, Market Cap, Index Fund
Bond: A fixed-income debt instrument where an investor loans money to a borrower (government or corporation) for a defined period at a fixed or variable interest rate. Bonds pay periodic coupon payments and return the face value at maturity. They are generally less risky than stocks.Related: Duration, Yield Curve, Correlation
Bull Market: A market condition of rising prices, commonly defined as a gain of 20% or more from a recent low, driven by economic growth, rising corporate earnings and positive sentiment. In India the NIFTY 50 and SENSEX are the usual yardsticks.Related: Bear Market, Market Cap, Momentum

C

CAGR: Compound Annual Growth Rate: the annualized rate of return that smooths out year-to-year volatility. CAGR shows the steady rate at which an investment would have grown if it had compounded at a constant rate. It is calculated as (ending value / beginning value)^(1/years) - 1.Related: Compound Interest, Return on Equity, Risk-Adjusted Return
Capital Gains: The profit from selling an asset for more than its cost. In India, listed equity shares and equity-oriented mutual funds held for more than 12 months give long-term capital gains (LTCG), taxed at 12.5% on gains above ₹1.25 lakh in a financial year; held for 12 months or less they give short-term capital gains (STCG), taxed at 20%. These rates apply to transfers from 23 July 2024, plus any surcharge and 4% cess. Other assets have their own holding periods and rates.Related: Compound Interest, Dividend Yield, Rupee Cost Averaging
CAS: Consolidated Account Statement: one statement of all your Indian mutual fund holdings across fund houses, linked by PAN. CAMS and KFintech issue it for mutual fund folios, and the depositories NSDL and CDSL issue one that also covers demat holdings. Importing it here loads your Indian holdings.Related: AMFI NAV, Demat Account, Mutual Fund
Compound Interest: Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called the eighth wonder of the world, compounding creates exponential growth over time. The Rule of 72 (divide 72 by the return rate) estimates the years needed to double your money.Related: CAGR, Capital Gains, Rupee Cost Averaging
Correlation: A statistical measure ranging from -1.0 to +1.0 that describes how two investments move relative to each other. Positive correlation means they move together; negative correlation means they move inversely. Low correlation between portfolio assets provides diversification benefits and reduces overall risk.Related: Diversification, Modern Portfolio Theory, Beta
Covered Call: An options strategy where an investor who owns the underlying stock sells a call option against it, collecting the premium as income. Maximum profit is capped at the strike price plus premium received. This is considered one of the safest options strategies because the obligation is covered by stock ownership.Related: Delta, Theta, Gamma

D

DCF: Discounted Cash Flow: a valuation method that estimates a company's intrinsic value by projecting future free cash flows and discounting them to present value using the weighted average cost of capital (WACC). DCF is considered the gold standard of valuation methods by fundamental analysts.Related: Free Cash Flow, P/E Ratio, Price-to-Book
Delta: An options Greek measuring how much an option's price changes for a ₹1 change in the price of the underlying. Delta ranges from 0 to 1 for calls and from -1 to 0 for puts. It also roughly approximates the probability that the option expires in the money.Related: Gamma, Theta, Covered Call
Demat Account: An account that holds shares, bonds, ETFs and other securities in electronic form. It is opened through a depository participant, usually a broker or bank, and the records are kept by one of India's two depositories, NSDL or CDSL. Each holding is identified by its ISIN.Related: CAS, STT, ETF
Diversification: The practice of spreading investments across multiple assets, sectors, and geographies to reduce risk. Harry Markowitz called it "the only free lunch in investing." Approximately 25-30 uncorrelated stocks eliminate most company-specific risk, but systematic (market) risk cannot be diversified away.Related: Asset Allocation, Correlation, Modern Portfolio Theory
Dividend Yield: The annual dividend divided by the share price, as a percentage. A ₹1,000 share paying ₹30 a year has a 3% yield. Yield moves inversely with price: a falling price raises the yield, which can signal value or a dividend at risk. In India, dividends are taxed in the hands of the investor at slab rates.Related: Payout Ratio, Ex-Dividend Date, Capital Gains
Drawdown: The peak-to-trough decline in portfolio value before a new peak is reached. Maximum drawdown measures the worst loss an investor experienced. A 50% drawdown requires a 100% gain just to break even, making drawdown avoidance a critical component of risk management.Related: Volatility, Value at Risk, Sharpe Ratio
Duration: A measure of a bond's price sensitivity to interest rate changes, expressed in years. A duration of 5 years means the bond's price will change approximately 5% for every 1% change in interest rates. Longer duration means higher interest rate risk but potentially higher returns.Related: Bond, Yield Curve, Correlation

E

ELSS: Equity Linked Savings Scheme: an equity mutual fund with a 3-year lock-in from each investment date. Under the old tax regime, investments of up to ₹1.5 lakh a year (together with other section 80C items) are deductible; the new regime gives no such deduction. Gains are taxed as equity capital gains.Related: Mutual Fund, LTCG, SIP
EPF: Employees' Provident Fund: retirement savings for salaried employees, run by the EPFO. The employee contributes 12% of basic pay plus dearness allowance and the employer contributes the same, part of it to the pension scheme (EPS). The interest rate is declared each year, and interest on employee contributions above ₹2.5 lakh a year is taxable.Related: PPF, NPS
EPS: Earnings Per Share: a company's net profit divided by its number of outstanding shares. EPS is one of the most widely used metrics for evaluating profitability and is the denominator in the P/E ratio. Diluted EPS accounts for potential dilution from stock options and convertible securities.Related: P/E Ratio, Free Cash Flow, Return on Equity
ETF: Exchange-Traded Fund: a fund that trades on a stock exchange like a share while holding a basket of securities. In India, ETFs are listed on NSE and BSE and regulated by SEBI; most track an index such as the NIFTY 50 or SENSEX, or a commodity such as gold. They are bought and sold through a demat account at market prices during trading hours.Related: Index Fund, Mutual Fund, Diversification
Ex-Dividend Date: The date from which a buyer of a share is no longer entitled to the declared dividend. To receive it, you must own the share before the ex-date. On Indian exchanges, with T+1 settlement, the ex-date and the record date are usually the same day. The share price typically falls by about the dividend amount on the ex-date.Related: Dividend Yield, Payout Ratio, Capital Gains

F

Fixed Deposit: A deposit with a bank or company for a fixed term at a fixed interest rate, usually compounded quarterly. Interest is taxed at slab rates as it accrues, and the bank deducts TDS once the interest in a year passes the threshold.Related: TDS, Compound Interest, Inflation
Free Cash Flow: Operating cash flow minus capital expenditures: the cash available after maintaining and investing in business operations. FCF represents the true cash available for dividends, buybacks, debt reduction, and acquisitions. Many analysts consider it a better measure of value than net income because it is harder to manipulate.Related: DCF, EPS, Payout Ratio
Fundamental Analysis: The method of evaluating a security by examining related economic, financial, and qualitative factors to determine its intrinsic value. Analysts study financial statements, competitive advantages, industry dynamics, and management quality. Contrasted with technical analysis, which focuses on price patterns.Related: DCF, P/E Ratio, Technical Analysis

G

Gamma: An options Greek measuring how much delta changes for a ₹1 move in the underlying. High gamma means delta changes quickly, which is a risk for option sellers. Gamma is highest for at-the-money options close to expiry.Related: Delta, Theta, Covered Call

H

Hedge: An investment position taken to offset potential losses from another position. Common hedging techniques include buying put options for downside protection, holding bonds as equity hedges, and using collar strategies. Hedging reduces risk but also limits upside potential.Related: Covered Call, Diversification, Beta

I

Index Fund: A mutual fund or ETF that tracks a market index such as the NIFTY 50 or SENSEX instead of picking stocks. Index funds give broad diversification at a low expense ratio, and their returns differ from the index only by costs and tracking error.Related: ETF, Mutual Fund, Diversification
Inflation: The rate at which the general level of prices rises, reducing purchasing power. In India, the Reserve Bank of India's Monetary Policy Committee targets consumer price (CPI) inflation of 4%, within a band of 2% to 6%. Investors need returns above inflation to grow real wealth.Related: Bond, Yield Curve, Rupee Cost Averaging
IPO: Initial Public Offering: the first sale of a company's shares to the public. In India an IPO needs SEBI approval, investors bid within a price band through ASBA or UPI, and when an issue is oversubscribed, retail allotment is decided by lottery. The shares then list on NSE, BSE or both, and prices can be very volatile in the first days of trading.Related: Market Cap, Blue Chip, Liquidity

L

Limit Order: An order to buy or sell a security at a specific price or better. A buy limit order executes at the limit price or lower; a sell limit order at the limit price or higher. Limit orders give price control but risk non-execution if the market does not reach the specified price.Related: Market Order, Stop Loss, Bid-Ask Spread
Liquidity: The ease of turning an asset into cash without moving its price much. Shares of large companies such as Reliance Industries or HDFC Bank are highly liquid; real estate and unlisted shares are illiquid. Illiquid investments often need to offer a higher return to compensate.Related: Bid-Ask Spread, Market Order, Volume
LTCG: Long-term capital gains. In India, gains on listed equity shares and equity-oriented mutual funds held for more than 12 months are long term. They are taxed at 12.5% on the part above ₹1.25 lakh in a financial year, without indexation, for transfers from 23 July 2024. For shares bought before 1 February 2018, the cost can be stepped up to the 31 January 2018 market price (but not above the sale price).Related: STCG, STT, Capital Gains

M

Market Cap: Market capitalisation: the total market value of a company's shares, the share price multiplied by the shares outstanding. In India, SEBI classifies companies by full market cap rank: large cap is the 1st to 100th company, mid cap the 101st to 250th and small cap the 251st onward. AMFI publishes the list twice a year.Related: Blue Chip, IPO, Index Fund
Market Order: An order to buy or sell a security immediately at the best available current price. Market orders guarantee execution but not price: in fast-moving or illiquid markets, the execution price may differ significantly from the last quoted price (slippage).Related: Limit Order, Stop Loss, Bid-Ask Spread
Modern Portfolio Theory: A framework developed by Harry Markowitz in 1952 showing how investors can construct portfolios to maximize expected return for a given level of risk through diversification. MPT introduced the efficient frontier: the set of optimal portfolios, and won Markowitz the Nobel Prize in Economics.Related: Diversification, Correlation, Sharpe Ratio
Momentum: The tendency of assets that have recently outperformed to continue outperforming, and vice versa, over intermediate timeframes (3-12 months). Momentum is one of the most documented factor premiums in finance and is attributed to behavioral biases like underreaction and herding.Related: Moving Average, RSI, Technical Analysis
Moving Average: A technical indicator that smooths price data by calculating the average price over a specified number of periods. The 50-day and 200-day moving averages are most widely followed. A Golden Cross (50-day crossing above 200-day) is a bullish signal; a Death Cross is bearish.Related: Momentum, RSI, Technical Analysis
Mutual Fund: A professionally managed fund that pools money from many investors to buy shares, bonds or other securities. In India, mutual funds are regulated by SEBI, every scheme publishes its NAV each business day through AMFI, and units are bought or redeemed at that NAV.Related: ETF, Index Fund, Diversification

N

NPS: National Pension System: a market-linked retirement scheme regulated by PFRDA that invests in equity, corporate bonds and government securities. Tier I is the retirement account with restricted withdrawals; Tier II is an optional account you can withdraw from. At exit, part of the corpus can be taken as a lump sum and the rest buys an annuity, in proportions set by PFRDA rules.Related: EPF, PPF, Asset Allocation

P

P/E Ratio: Price-to-Earnings ratio: a share's price divided by its earnings per share. A high P/E suggests investors expect strong growth; a low P/E suggests low expectations or undervaluation. NSE publishes the P/E of the NIFTY 50 and its other indices every trading day, a common yardstick for how richly the market is valued.Related: EPS, Price-to-Book, DCF
Payout Ratio: The share of a company's earnings paid out as dividends: dividends per share divided by earnings per share. A ratio below about 60% is usually sustainable; above 80% may be hard to maintain. Indian REITs and InvITs pay out much more by design, since they must distribute at least 90% of their net distributable cash flows.Related: Dividend Yield, Ex-Dividend Date, Free Cash Flow
Portfolio Rebalancing: The process of restoring a portfolio to its target asset allocation by selling overweight positions and buying underweight ones. Rebalancing forces a disciplined buy-low, sell-high approach and can add 0.5-1.0% annually in risk-adjusted returns. Annual rebalancing is typically optimal.Related: Asset Allocation, Diversification, Rupee Cost Averaging
PPF: Public Provident Fund: a government-backed savings scheme with a 15-year term that can be extended in blocks of 5 years. You can deposit up to ₹1.5 lakh a financial year; the government sets the interest rate each quarter and it compounds yearly. Interest and the maturity amount are tax free, and deposits qualify for section 80C under the old tax regime.Related: EPF, NPS, Compound Interest
Price-to-Book: A valuation ratio comparing a stock's market price to its book value per share (assets minus liabilities divided by shares outstanding). A P/B below 1.0 means the stock trades below its net asset value. The Price-to-Book ratio is a key metric in value factor investing and the Fama-French model.Related: P/E Ratio, DCF, Return on Equity

R

REIT: Real Estate Investment Trust: a trust that owns income-producing real estate, such as offices and malls, and passes most of the income to unitholders. Indian REITs are regulated by SEBI and listed on NSE and BSE; they must keep at least 80% of their assets in completed, income-generating property and distribute at least 90% of their net distributable cash flows.Related: Dividend Yield, Payout Ratio, Diversification
Return on Equity: Net income divided by shareholders' equity, measuring how effectively a company uses shareholder investment to generate profits. An ROE consistently above 15% indicates strong management and competitive advantages. Warren Buffett considers high ROE one of the most important indicators of a quality business.Related: EPS, P/E Ratio, Free Cash Flow
Risk-Adjusted Return: A measure of investment return that accounts for the level of risk taken to achieve it. Common metrics include the Sharpe Ratio (excess return per unit of total risk) and Sortino Ratio (excess return per unit of downside risk). Risk-adjusted returns enable fair comparison between investments with different risk levels.Related: Sharpe Ratio, Alpha, Beta
RSI: Relative Strength Index: a momentum oscillator measuring the speed and magnitude of price changes on a scale of 0 to 100. Readings above 70 indicate overbought conditions; below 30 indicate oversold. RSI divergences from price are considered more reliable signals than overbought/oversold levels alone.Related: Momentum, Moving Average, Technical Analysis
Rupee Cost Averaging: Investing a fixed rupee amount at regular intervals regardless of market levels. It buys more units when prices are low and fewer when they are high, so the average cost per unit ends up below the average of the prices paid. A SIP is the usual way to do it in India.Related: SIP, Compound Interest, Volatility

S

Schedule FA: The schedule of the Indian income tax return in which a resident (ordinarily resident) reports foreign assets, such as shares listed abroad, foreign bank accounts and the income from them. It covers assets held at any time during the calendar year that ends in the financial year, and must be filed even if the asset earned no income.Related: Capital Gains, TDS
Sector Rotation: An investment strategy that shifts portfolio weightings between economic sectors based on the stage of the business cycle. Cyclical sectors (tech, discretionary) tend to lead in early recovery; defensive sectors (utilities, staples, healthcare) hold up best during recessions.Related: Asset Allocation, Diversification, Momentum
SGB: Sovereign Gold Bond: a bond issued by the Reserve Bank of India for the Government of India and priced in grams of gold. It pays 2.5% a year on the issue price, half-yearly, and repays the gold price at maturity after 8 years, with early redemption allowed from the fifth year. Capital gains at redemption are tax free for individuals; the interest is taxable.Related: Bond, Inflation, Diversification
Sharpe Ratio: A measure of risk-adjusted return calculated as the portfolio's excess return over the risk-free rate divided by its standard deviation. A Sharpe Ratio above 1.0 is considered good; above 1.5 is excellent; below 0.5 is poor. It is the most widely used metric for comparing investment performance on a risk-adjusted basis.Related: Alpha, Beta, Risk-Adjusted Return
Short Selling: Selling shares you do not own, intending to buy them back later at a lower price. Short sellers profit when the price falls, and the possible loss is unlimited because the price can keep rising. In the Indian cash market a short sale must be bought back the same day unless the shares are borrowed through the Securities Lending and Borrowing (SLB) mechanism; longer short positions are usually taken through futures and options.Related: Bear Market, Hedge, Stop Loss
SIP: Systematic Investment Plan: investing a fixed rupee amount in a mutual fund at regular intervals, usually monthly, by auto-debit. Because the amount is fixed, it buys more units when the NAV is low and fewer when it is high.Related: Rupee Cost Averaging, Mutual Fund, AMFI NAV
STCG: Short-term capital gains. In India, gains on listed equity shares and equity-oriented mutual funds held for 12 months or less are short term, taxed at 20% for transfers from 23 July 2024 when STT was paid. Short-term gains on most other assets are added to income and taxed at slab rates.Related: LTCG, STT, Tax-Loss Harvesting
Stop Loss: An order to sell a security when it reaches a specified price, designed to limit potential losses. A trailing stop moves up with the price, protecting gains. Stop-losses are essential risk management tools but cannot protect against gap-down scenarios where price jumps past the stop level.Related: Limit Order, Market Order, Drawdown
STT: Securities Transaction Tax: a tax collected by Indian stock exchanges on trades in listed securities. For delivery trades in equity shares it is 0.1% of the trade value on both the buy and the sell. Paying STT is a condition for the special LTCG and STCG rates on listed equity.Related: LTCG, STCG, Demat Account

T

Tax-Loss Harvesting: Selling investments at a loss to offset realised capital gains and lower the tax bill. In India, a short-term capital loss can be set off against both short-term and long-term gains, while a long-term capital loss can be set off only against long-term gains. Losses left over can be carried forward for 8 years if the return is filed on time.Related: Capital Gains
TDS: Tax Deducted at Source: income tax the payer deducts before paying you, for example a bank on fixed deposit interest or a company on dividends, once the payment passes a yearly threshold. It is credited against your final tax and shows in Form 26AS.Related: Fixed Deposit, Dividend Yield, Schedule FA
Technical Analysis: The study of past market data, primarily price and volume, to forecast future price movements. Based on three principles: the market discounts everything, prices move in trends, and history tends to repeat itself. Commonly used tools include candlestick charts, moving averages, RSI, and support/resistance levels.Related: RSI, Moving Average, Momentum
Theta: An options Greek measuring the rate of time decay: how much an option's value decreases per day, all else being equal. Theta accelerates as expiration approaches, which is why option sellers prefer selling 30-45 day options to capture the fastest decay period.Related: Delta, Gamma, Covered Call

V

Value at Risk: A statistical estimate of the most a portfolio is expected to lose over a set period at a given confidence level. A one-day 95% VaR of ₹1,00,000 means there is a 95% probability the portfolio will not lose more than ₹1,00,000 in a day. Banks and institutions use it widely for risk management.Related: Sharpe Ratio, Drawdown, Beta
Volatility: A measure of how widely returns vary, usually the standard deviation of returns. Higher volatility means larger price swings. India VIX, published by NSE from NIFTY 50 option prices, measures the volatility the market expects over the next 30 days; a higher reading means more fear.Related: Beta, Drawdown, Value at Risk
Volume: The number of shares or contracts traded in a security or market during a given period. Volume confirms price movements: high volume moves are more likely to continue than low volume moves. Unusual volume spikes can signal important events or turning points.Related: Liquidity, Technical Analysis, Momentum

Y

Yield Curve: A graph of bond yields against maturities for bonds of the same credit quality. A normal curve slopes upward, with higher yields for longer maturities; an inverted curve, with short-term yields above long-term yields, has often come before economic slowdowns. In India the curve is drawn from government securities (G-Secs), and the Reserve Bank of India's repo rate anchors the short end.Related: Bond, Duration, Inflation

See these ideas on your own numbers: INDYXQUANT links each term to the page where it shows up for your portfolio.

Do this with your real portfolio