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Financial Glossary

30 common terms explained in plain language.

FD (Fixed Deposit)

Money you lock with a bank for a fixed time at a fixed interest rate.

Example: Deposit ₹1 lakh for 1 year at 7% → Get ₹1.07 lakh at maturity.

RD (Recurring Deposit)

Monthly savings where you deposit a fixed amount regularly.

Example: Save ₹5,000/month for 2 years → Build a corpus of ~₹1.3 lakh.

PPF (Public Provident Fund)

A government-backed long-term savings scheme with tax benefits.

Example: Invest ₹1.5 lakh/year for 15 years → Grows tax-free to ~₹40+ lakh.

EPF (Employee Provident Fund)

Retirement savings deducted from your salary, matched by employer.

Example: 12% of ₹50,000 basic = ₹6,000/month from you + ₹6,000 from employer.

SIP (Systematic Investment Plan)

Investing a fixed amount regularly (usually monthly) in mutual funds.

Example: ₹5,000 SIP in an index fund for 10 years could grow to ₹10+ lakh.

Index Fund

A mutual fund that mirrors a market index like Nifty 50.

Example: Instead of picking stocks, you own a slice of India's top 50 companies.

Mutual Fund

Money pooled from many investors, managed by professionals.

Example: 1,000 people invest ₹1,000 each = ₹10 lakh fund managed together.

NAV (Net Asset Value)

The per-unit price of a mutual fund.

Example: If NAV is ₹100 and you invest ₹10,000, you get 100 units.

Liquidity

How quickly you can convert an investment to cash.

Example: Savings account = high liquidity. PPF = low liquidity (15-year lock-in).

Lock-in Period

Time during which you cannot withdraw your money.

Example: ELSS has a 3-year lock-in. PPF has 15 years (partial after 7).

Risk

The chance that your investment could lose value.

Example: FD = low risk (guaranteed). Stocks = high risk (can go up or down).

Returns

The profit or loss you make on an investment.

Example: Invested ₹1 lakh, now worth ₹1.2 lakh = 20% returns.

Inflation

The rate at which prices increase over time, reducing money's value.

Example: If inflation is 6%, ₹100 today buys what ₹94 will buy next year.

Compounding

Earning returns on your returns. Money growing on itself.

Example: ₹1 lakh at 10% = ₹1.1L year 1, ₹1.21L year 2, ₹2.59L year 10.

Diversification

Spreading money across different investments to reduce risk.

Example: Instead of all in stocks, split between FD, mutual funds, and gold.

ELSS (Equity Linked Savings Scheme)

A tax-saving mutual fund with a 3-year lock-in.

Example: Invest ₹1.5 lakh → Save up to ₹46,800 in taxes under 80C.

NPS (National Pension System)

A retirement savings scheme with tax benefits beyond 80C.

Example: Extra ₹50,000 deduction under 80CCD(1B) on top of 80C limit.

SGB (Sovereign Gold Bonds)

Government bonds that track gold prices plus pay interest.

Example: Own gold without storing it. Get 2.5% interest + gold price gains.

STCG (Short-Term Capital Gains)

Tax on profits from selling investments held for a short time.

Example: Sell equity mutual fund within 1 year → 15% tax on profits.

LTCG (Long-Term Capital Gains)

Tax on profits from selling investments held for longer periods.

Example: Sell equity after 1 year → 10% tax on gains above ₹1 lakh.

Expense Ratio

The annual fee charged by a mutual fund as a percentage.

Example: 0.5% expense ratio on ₹1 lakh = ₹500/year fee deducted.

Debt Fund

A mutual fund that invests in bonds and fixed-income securities.

Example: Lower risk than equity funds. Returns typically 6-8% per year.

Equity

Ownership in a company, usually through stocks.

Example: Buying 10 shares of Reliance = owning a tiny piece of Reliance.

Portfolio

Your collection of all investments.

Example: Your portfolio: ₹2L in FD + ₹1L in mutual funds + ₹50K in PPF.

Asset Allocation

How you divide money between different types of investments.

Example: 60% equity, 30% debt, 10% gold = your asset allocation.

Rupee Cost Averaging

Buying more units when prices are low through regular investing.

Example: SIP of ₹5,000: Buy 50 units at ₹100, 100 units at ₹50 when market dips.

Emergency Fund

Savings kept aside for unexpected expenses.

Example: If expenses are ₹50K/month, keep ₹1.5-3L easily accessible.

Maturity

When an investment period ends and you get your money back.

Example: FD matures after 1 year. PPF matures after 15 years.

Nominee

Person who receives your investment if something happens to you.

Example: Add your spouse/parent as nominee in bank accounts and mutual funds.

KYC (Know Your Customer)

Identity verification required before investing.

Example: PAN + Aadhaar + photo + signature = KYC complete for mutual funds.

Frequently Asked Questions

Why do I need to know these terms?▼
Understanding basic terms helps you make sense of what banks, apps, and advisors tell you. You don't need to memorize everything. Just know where to look.
What's the difference between saving and investing?▼
Saving is keeping money safe (bank account, FD). Investing is putting money to work for growth (mutual funds, stocks). Saving is for short-term; investing is for long-term.
Is PPF better than FD?▼
They serve different purposes. PPF is for long-term (15 years) with tax benefits. FD is flexible (1-5 years) with no tax benefit. Choose based on when you need the money.
What's the safest investment in India?▼
Government-backed options like PPF, EPF, and bank FDs (up to ₹5L insured) are considered very safe. But "safe" often means lower returns.
Should I worry about STCG and LTCG?▼
Only if you're selling investments at a profit. For long-term SIPs, LTCG only applies to gains above ₹1 lakh/year. Most beginners don't need to worry much.
What's a good expense ratio for mutual funds?▼
Index funds typically have 0.1-0.5%. Actively managed funds can be 1-2%. Lower is generally better for similar performance.
How much emergency fund do I need?▼
A common suggestion is 3-6 months of expenses. If your job is unstable or you have dependents, lean towards 6+ months.
Can I lose money in mutual funds?▼
Yes, especially in the short term. Equity funds can drop 20-30% in a bad year. But historically, staying invested for 7-10+ years has been profitable.
What is the 80C tax deduction?▼
Section 80C lets you reduce taxable income by up to ₹1.5 lakh/year through investments like PPF, ELSS, EPF, life insurance, etc.
Where should I start as a complete beginner?▼
Start with an emergency fund in a savings account. Then explore PPF or a simple index fund SIP. Don't rush. Understanding matters more than speed.
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