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Capital Markets

Capital markets /Finance  related terms – 01

Accounts Payable

A current liability showing the amounts due to others within a period of one year when such liability resulted from the purchase or manufacturing of inventory.

Accounts Receivable

Any money due to a business for merchandise or securities that it has sold or for services it has rendered. This is a key determinant in analyzing a company’s liquidity.

Accrued Interest

The interest accruing on a security since the previous coupon date. If a security is sold between two payment dates, the buyer usually compensates the seller for the interest accrued, either within the price or as a separate payment.

Acid Test Ratio

The value of cash equivalents and accounts receivable (the quick assets) divided by current liabilities. Also known as quick asset ratio or liquidity ratio, it is a measurement of corporate liquidity.

Acquirer

Any individual/company/any other legal entity, which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company along with the persons acting in concert.

Active portfolio Strategy

A strategy that uses available information and forecasting techniques to seek a better performance  than a portfolio that is simply diversified broadly.

Adhoc Margin

Margin collected by the Stock Exchange from the members having unduly large outstanding position or the margin levied on volatile scrips based on adhoc basis keeping in view the risk perspective.

Adjusted beta

The estimation of a security’s future beta, which is derived from historical date, but is modified assuming that the security’s real beta has tendency to move towards the market average of one.

Admission to Dealing

The process of granting permission to the securities of a company to be listed in a Stock Exchange and to provide trading facilities for the securities in the market.

Adviser

A financial planner or financial intermediary who offers advice on personal financial matters. Advisers may be paid an upfront or an ongoing commission for the investments that they recommend.

Allotment Letter

Document of title issued to investors by companies stating allotment of shares/debentures /other securities to applicants subscribing for such securities or in pursuance of certain contracts entered into in that behalf. These letters are negotiable in the market.

Alpha

In a Jensen Index, a factor to represent the portfolio’s performance that diverges from its beta, representing a measure of the manager’s performance.

AMBI- Association of Merchant Bankers in India

American Depository Receipts (ADR) (U.S.)

A certificate issued in the United States in lieu of a foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock. An ADR dividend is paid in US dollars, so it provides a way for American investors to buy foreign securities without having to go abroad, and without having to switch in and out of foreign currencies.

American Option

A put or call that can be exercised at any time prior to expiration. Most listed stock options, including those on European exchanges are US style options. Important exceptions are certain low strike price options and options on shares with restricted transferability. Most listed options on other instruments are also US-style options, but a number of European style options have been introduced in recent years, particularly on stock indices and currencies.

AMFI- Association of Mutual Funds in India

Analyst

A firm / company / an individual who is engaged either on his own behalf or on behalf of any other  firm or organization that is regularly publishing securities recommendations based on research either through print media and /or electronic media.

Appreciation

A rise in the price of a security or in the value of one currency in terms of another.

Approved intermediary

A person duly registered by the SEBI Board under the Securities Lending Scheme , 1997 through whom the lender of securities will deposit the securities and the borrower will borrow the securities.

Arbitrage

(1) Technically, arbitrage consists of purchasing a commodity or security in one market for immediate sale in another market (deterministic arbitrage).

(2) Popular usage has expanded the meaning of the term to include any activity which attempts to buy a relatively underpriced item and sell a similar, relatively overpriced item, expecting to profit when the prices resume a more appropriate theoretical or historical relationship (statistical arbitrage).

Arbitration

An alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.

 

Asset Allocation

The process of determining the optimal division of an investor’s portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash

Asset allocation fund

A mutual fund that splits its investment assets among stocks, bonds, and other vehicles in an attempt to provide a consistent return for the investor.

Asset-backed securities

Securities backed by assets that are not mortgage loans. Examples include assets backed by automobile loans, credit card receivables and others.

Asset Management

The function of managing assets on behalf of a customer, usually for a fee.

Asset Management Company

The company which handles the day to day operations and investment decisions of a unit trust.

At Best

An instruction from the client to the broker authorizing him to use his discretion so as to execute an order at the best possible market price.

Auditor

A person who is professionally qualified to examine and scrutinize accounts. He/she inspects records and reports on the profitability and financial position of the company.

 

Authorized Capital

The amount of capital that a company has been authorized to raise by way of equity and preference shares, as mentioned in the Articles of Association / Memorandum of Association of the company.

Automatic Reinvestment

A fund service giving unit holders/ shareholders the option to purchase additional units/ shares using dividend and capital gain distributions.

Averaging

The process of gradually buying more and more securities in a declining market (or selling in a rising market) in order to level out the purchase (or sale) price.

Back office

The part of a firm that is responsible for post-trade activities. Depending upon the organizational structure of the firm, the back office can be a single department or multiple units (such as documentation, risk management, accounting or settlements). Some firms have combined a portion of these responsibilities, usually found in the back office, particularly those related to risk management, into what they term as a middle office function.

Badla

Carrying forward of transactions from one settlement period to another without effective delivery. This is permitted only in specified securities and is done at the making up price which is usually the closing price of the last day of settlement.

Badla Charge/ Contango

Consideration or interest paid to the seller by the buyer for carrying over a transaction from one settlement period to another.

Badliwalas

A financier who lends money to both buyers and sellers of shares when they are not able to pay or deliver.

 

Bail out of issue

When the public issue do not get good response from the public or fails to garner minimum subscription ,the issuer or promoters approaches the financiers or some persons to arrange subscription to bail out the issue for consideration of buy-back shares subsequent from the financiers at higher price or compensating the financier by payment of interest on the amount of the subscription money paid in the public issue.

Balance Sheet

An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.

Balanced fund

Funds which aim to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.

Bancassurance

The phenomenon whereby a financial institution combines the selling of banking products and insurance products through the same distribution channel. Popular in the early 1990s bancassurance rested on the premise that it is easy to cross-sell banking and insurance services because customers feel  confident buying insurance from the same institution where they keep their savings.

Band Ke Bhao

Unauthorized trading in securities done outside official hours.

Bankers acceptance

A short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market

Chinese walls

Artificial barriers to the flow of information set up in large firms to prevent the movement of sensitive information between departments.

Churning

An unethical practice employed by some brokers to increase their commissions by excessively trading in a client’s account. In the context of the stock market, churning refers to a period of heavy trading with few sustained price trends and little movement in stock market indices.

Circuit Breaker

A system to curb excessive speculation in the stock market, applied by the Stock Exchange authorities, when the index spurts or plunges by more than a specified per cent. Trading is then suspended for some time to let the market cool down.

Clean Float

Where there is no official intervention – the price is permitted to vary in line with the market forces

Clearing

Settlement or clearance of accounts, for a fixed period in a Stock Exchange.

Clearing House

A department of an exchange or a separate legal entity that provides a range of services related tothe clearance and settlement of trades and the management of risks associated with the resulting contracts. A clearing house is often central counterparty to all trades, that is, the buyer to every seller and the seller to every buyer.

Closing Out

Where a party to a contract does not make delivery against sale or payment against delivery of documents, the other party can close out the transaction against the defaulting party. The gain or loss arising from the closing out is borne by the defaulter.

Close-ended Fund

A type of investment company that has a fixed number of shares which are publicly traded. The price of a closed end share fluctuates based on investor supply and demand. Closed ended funds are not required to redeem shares and have managed portfolios.

Behavioral economics

Combination of psychology and economics that investigates what happens in markets in which some  of the agents display human limitations and complications (i.e. irrational behavior).

Beta

A measure of the volatility of a stock relative to the market index in which the stock is included. A low beta indicates relatively low risk; a high beta indicates a high risk.

Bid                        

An offer of a price to buy as in an auction. Business on the Stock Exchange is done through bids. Bid also refers to the price one is willing to pay for a security.

Blue Chip

The best rated shares with the highest status as investment based on return, yield, safety, marketability and liquidity.

Bond

A negotiable certificate evidencing indebtedness – a debt security or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bondholder periodic interest payments over the life of the loan.

Bonus Shares

Shares issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Book building process

A process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document

Book Closure

The periodic closure of the Register of Members and Transfer Books of the company, to take a record of the shareholders to determine their entitlement to dividends or to bonus or right shares or any other rights pertaining to shares.

Book Runner

A Lead Merchant Banker who has been appointed by the issuer company for maintaining the book. The name of the Book Running Lead Manager will be mentioned in the offer document of the Issuer Company.

Book Value

The net amount shown in the books or in the accounts for any asset, liability or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities

Boom

A condition of the market denoting increased activity with rising prices and higher volume of business resulting from greater demand of securities. It is a state where enlarged business, both investment and speculative, has been taking place for a sufficiently reasonable period of time.

Break Even Point

The stock price (or price) at which a particular strategy of transaction neither makes nor loses money.

Broker

A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on their behalf in the market. Though strictly a stock broker is an agent, yet for the performance of his part of the contract both in the market and with the client, he is deemed as a principal, a peculiar position of dual responsibility.

Brokerage

Commission payable to the stockbroker for arranging sale or purchase of securities. Scale of brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the maximum chargeable commission.

Bubble

A speculative sharp rise in share prices which like the bubble is expected to suddenly burst.

Bull

A market player who believes prices will rise and would, therefore, purchase a financial instrument with a view to selling it at a higher price. Opposite of a bear.

Bull Market

A rising market with abundance of buyers and relatively few sellers.

Bulldog Bond

A bond denominated in sterling but issued by a non British borrower.

Buoyancy

A rising trend in prices.

 

Business Day

A day on which the Stock Exchange is open for business and trading in securities.

 

Buy back

The repurchase by a company of its own stock or bonds

 

Call Money

The unpaid installment of the share capital of a company, which a shareholder is called upon to pay.

 

Call option

An agreement that gives an investor the right, but not the obligation, to buy an instrument at a known price by a specified date. For this privilege, the investor pays a premium, usually a fraction of the price of the underlying security.

 

Capital Asset Pricing Model (CAPM)

An economic theory that describes the relationship between risk and expected return and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because it cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium.

 

Cash List

List of non-specified securities, traded usually for hand delivery and also for special delivery and spot delivery.

 

Cash Market

A market for sale of security against immediate delivery, as opposed to the futures market.

 

Cash Settlement

The settlement provision on some options and futures contracts that do not require delivery of the underlying security. For options, the difference between the settlement price on the underlying asset and the option’s exercise price is paid to the option holder at exercise. For futures contracts, the exchange establishes a settlement price on the final day of trading and all remaining open positions are marked to market at that price.

 

Certificate of Deposit

A negotiable certificate issued by a bank, usually for a period of one month to a year, as evidence of an interest bearing time deposit. This may also be offered at a discount.

Commercial Paper

A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in form of a promissory note redeemable at par to the holder on maturity and therefore does not require any guarantee.

Common stock

Units of ownership of a public corporation. Holders of common stock typically have voting rights and receive dividends, but there is no guarantee of dividend payment.

Constituent Subsidiary General Ledger (SGL) account

A constituent SGL account is an account held by an intermediary at Reserve Bank of India (RBI) on behalf of its constituents who have empowered the said intermediary to carry out various transactions on their behalf. In this account only constituent transactions can take place and under no circumstances the intermediary will use this account for proprietary transactions.

Continuous disclosure

Procedure where certain companies are required to make disclosures on a continuing basis of their business activities by filing documents.

Controlling interest

Holding a sufficiently large number of shares in a company so as to be able to control its prices.

Conversion Ratio

The number of shares which may be acquired upon the conversion of a convertible instrument. The ratio is calculated as instrument’s principal amount divided by conversion price.

Convertible Bond

A bond giving the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.

Corporate Governance

The way in which companies run themselves, in particular the way in which they are accountable to those who have a vested interest in their performance, especially their shareholders.

Corporate restructuring

Involves making radical changes in the composition of the businesses in the company’s portfolio.

Correction

Temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent  rise in prices) or a rally (an increase following a consistent fall in prices).

Counter party risk

The risk that between the time a transaction has been arranged and the time of actual settlement, the counterparty to the transaction will fail to make the appropriate payment.

Coupon Rate

The interest rate stated on the face of coupon.

Cover

(1) To take out a forward foreign exchange contract.

(2) To close out a short position by buying the currency or securities which have been sold.

(3) To insure.

(4) The purchase or sale of futures to offset a previously established short or long position.

Credit rating

Credit ratings measure a borrower’s creditworthiness and provide an international framework for comparing the credit quality of issuers and rated debt securities. Rating agencies allocate three kinds of ratings: issuer credit ratings, long-term debt, and short-term debt. Issuer credit ratings are amongst the most widely watched. They measure the creditworthiness of the borrower including its capacity and willingness to meet financial needs. The top credit rating issued by the main agencies – Standard & Poor’s, Moody’s and Fitch IBCA – is AAA or Aaa. This is reserved for a few sovereign and corporate issuers. Ratings are divided into two broad groups – investment grade and speculative (junk) grade.

Credit rating agency

Credit rating agency means a body corporate which is engaged in, or proposes to be engaged in, the business of rating of securities offered by way of public or rights issue.

Credit Risk

The risk that a counterparty will not settle an obligation for full value, either when due or at any time thereafter. Credit risk includes pre-settlement risk (replacement cost risk) and settlement risk (Principal risk).

Cross-Rate (U.S)

The exchange rate between currencies A and C which is derived from the rate between A and B and the rate between B and C. Thus if $ 1 = DM 2.50 and $1=Yen 250, the cross rate  etween the DM and Yen is DM 1= Yen 100.

Current Asset

Cash or an item of value expected to be converted into cash within one year or one operating cycle, whichever is longer.

Current Liability

Accounting term for money payable within the current accounting year, on account of trade creditors, taxation, dividends, etc. To these are often added provisions, i.e. any charges or liabilities (various government duties, disputed claims, etc.) which the company may have to settle within the accounting year.

Current Ratio

Current ratio measures a company’s current assets relative to its current liabilities. This gives an  indication of its abilities to meet short-term liabilities; the higher the ratio, the more liquid the company.

 

Current Yield

A measure of the return to a bondholder calculated as a ratio of the coupon to the market price. It is simply the annual coupon rate divided by the clean price of the bond.

Custodian

An organization, usually a bank or any other approved institutions, that hold the securities and other assets of mutual funds and other institutional investors.

Dalal Street

Street on which The Stock Exchange, Mumbai is situated. Used synonymously for The Stock Exchange, Mumbai.

Debentures

Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on a particular date on redemption of the debentures.

Debenture Trustee

A trustee of a trust deed for securing any issue of debentures of a body corporate.

Delisting of securities

Permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.

Delivery

Presentation of securities with transfer deeds in fulfillment of a transaction.

Delivery Notice (U.S.)

The written notice given by the seller of his intention to make delivery against an open short futures position on a particular date.

Delivery Order

An output given to each member of the Stock Exchange at the end of a settlement period containing particulars such as number of shares, value of shares, names of the receiving members etc. to enable him to deliver such shares in time.

Dematerialise

The process of transforming securities holdings in physical form to those in electronic form through a Depository Participant.

Demutualization

Process of transition from “mutually-owned” association to a company “owned by shareholders”. In other words, transformation of the legal structure from a mutual form to a business corporation form and privatisation of the corporations so constituted, is referred to as demutualization.

Depository

A system of organisation, which keeps records of securities, deposited by its depositors. The records may be physical or simply electronic records.

Depository participant (DP)

An agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI.

Depreciation

A fall in value of a security or security index or a currency in terms of others or its purchasing power.

Deregulation

The process of removing legal or quasi legal restriction on the type of business done or on the prices charged, within a particular industry. The aim of most deregulations is to increase competition by increasing the freedom of players in the industry.

Derivative Market

Markets such as futures and option markets that are developed to satisfy specific needs arising in traditional markets. These markets provide the same basic functions as forward markets, but trading usually takes place on standardized contracts.

Derivative

(1) A security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security;

(2) A contract which derives its value from the prices, or index or prices, of underlying securities

Direct Quotation

The quotation of variable units of domestic currency in terms of fixed units of foreign currency.

Disclosure

Full and material information given by a company that may allow an investor to take an informed investment decision

Discount

When a security is quoted at a price below its nominal or face value, it is said to be at a discount.

Disintermediation

A situation where some intervention usually by government agencies for the purpose of controlling or regulating the growth of financial intermediaries lessens their advantage in the provision of financial services and drives financial transfers and businesses into other channels.

Diversification

Spreading the risk by constructing a portfolio that contains many different investments whose returns

are relatively uncorrelated. Thus, risk levels can be reduced without a corresponding reduction in returns

Dividend

Payment made to shareholders, usually once or twice a year out of a company’s profit after tax. Dividend payments do not distribute the entire net profit of a company, a part or substantial part of which is held back as reserves for the company’s expansion. Dividend is declared on the face value or par value of a share, and not on its market price.

Dividend Payable

A current liability showing the amount due to stock holders/shareholders for dividend declared but not paid.

Dotcom Stocks

Companies whose products or services are in some way dependent on the Internet and which have the suffix “.com” (dot.com) as part of their registered name.

EDIFAR is Electronic Data Information Filing and Retrieval system. Securities and Exchange Board of India (SEBI) in association with National Informatics Centre (NIC) has set up the EDIFAR to facilitate filing of certain documents/statements by the listed companies online on the Web site (www.sebi.gov.in).  This would involve electronic filing of information in a standard format by the companies.

Employee Stock Option

“Employee stock option” means the option given to the whole-time directors, officers or employees of a company which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a predetermined price.

Employee Stock Purchase Scheme (ESPS)

“Employee stock purchase scheme (ESPS)” means a scheme under which the company offers shares to employees as part of a public issue or otherwise.

Emerging Markets

Term used to describe the financial markets of developing countries. Definitions vary of which countries are emerging and which are not. However, the emerging market indices compiled by the IFC and Morgan Stanley are often used as benchmarks.

Entry Fee

Fee paid by an investor when purchasing units in a trust or managed fund. The fee is included in the price that new investors pay.

Equity

The ownership interest in a company of holders of its common and preferred stock.

Equity premium

The difference between the expected return from holding stock and from holding riskless bonds.

Escrow account

The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction.

Eurobond

Eurobonds are issued in a specific currency outside the currency’s domicile. They are not subject to withholding tax and fall outside the jurisdiction of any one country. The Eurobond market is based in London. Not to be confused with euro-denominated bonds.

European Option

A put or call that can be exercised only on its expiration date. The term has nothing to do with where the option is traded or what underlies it. Stock options listed on European option exchanges are usually American Style options in the sense that they can be exercised prior to the expiration date.

EVA

Economic Value Added. Conceived by consultants Stern Stewart & Co, EVA is a popular method of measuring a company’s profitability. EVA is calculated by taking the total cost of capital from post-tax operating profit.

Exchange Rate Risk

The risk that adverse movements in exchange rates lead to capital losses in assets or revaluation of liabilities.

Exchange-traded derivative

A derivative which is listed and traded at an organised market-place. Derivatives exchanges generally provide standardised contracts and central clearing facilities for participants.

Exchange traded funds (ETF)

A security that tracks an index but has the flexibility of trading like a stock.

External Commercial Borrowings

In India External Commercial Borrowings are defined to include commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds, etc.,credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB,AFIC, CDC etc. ECBs are being permitted by the Government as a source of Finance for Indian corporates for expansion of existing capacity as well as for fresh investment.

Exit Fees

Fees charged by mortgage trusts/mutual funds on a sliding scale as penalty for early withdrawal.

Extrinsic Value

The amount by which the market price of an option exceeds the amount that could be realized if the option were exercised and the underlying commodity liquidated. Also known as time value.

 

Face Value

The value that appears on the face of the scrip, same as nominal or par value of share/debentures.

Family of Funds

A group of mutual funds, each typically with its own investment objective, managed and distributed by the same company.

Financial crisis

Sharp,brief,ultracyclical deterioration of all or most of a group of financial indicators – short term interest rates, asset (stock, real estate, land) prices, commercial insolvencies and failures of financial institutions.

Firewall

A barrier designed to prevent losses or risks taken in one part of a financial institution from weakening other parts of institution.

Firm allotment

Allotment on a firm basis in public issues by an issuing company made to Indian and multilateral development financial institutions ,Indian mutual funds , foreign institutional investors including non-resident Indians and overseas corporate bodies and  permanent/regular employees of the issuer company.

First in/First out

A popular inventory cost accounting procedure in which the first item manufactured is assumed to be the first one sold by the company

Fixed Asset

An item of value used in current operation that would normally be of use for more than one year.

Fixed Liability

An obligation of a company payable more than a year hence.

Float

The number of shares issued and outstanding of a company’s stock.

Floating rate coupon

Coupon rate that varies with (“floats against”) a standard market benchmark or index.

Floating Stock

The fraction of the paid up equity capital of a company which normally participates in day to day trading.

Floor price

The minimum offer price below which bids cannot be entered. The Issuer Company in consultation with the lead book runner fixes the floor price.

Foreign Exchange Rate

The price of one currency in terms of the other.

Foreign institutional investor

An institution established or incorporated outside India which proposes to make investment in India in securities; provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.

Fortune 500 (U.S.)

Since 1958, Fortune Magazine has published a list of five hundred largest American Industrial

Corporations, ranked according to size of sales.

Forward Contract

An agreement for the future delivery of the underlying commodity or security at a specified price at

the end of a designated period of time. Unlike a future contract, a forward contract is traded over the counter and its terms are negotiated individually. There is no clearing house for forward contracts, and the secondary market may be non-existent or thin.

Front Running

An unethical practice where brokers trade an equity based on information from the analysis department before their clients have been given the information. Fund manager /broker buys or sells securities in advance of a substantial client order or whereby a futures or options position position is taken about an impending transaction in the same or related futures or options contract.

Fund of funds

Fund of funds scheme means a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds.

Fungible securities

Securities which are easily interchangeable with another in the same class.

Futures Contract

An exchange traded contract generally calling for delivery of a specified amount of a particular financial instrument at a fixed date in the future. Contracts are highly standardized and traders need only agree on the price and number of contracts traded.

Gilt Edged

A term used to describe a bond, generally issued by the Government or issued with a Government Guarantee so much so that there are no doubts about the ability of the issuer to pay regular interest and the principal amount to the bond holders.

Gilt fund

Fund that invests exclusively in government securities.

Global Depository Receipts

Any instrument in the form of a depository receipt or certificate (by whatever name it is called) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company.

Good Delivery

Proper delivery by a seller to the buyer of the securities without any defect so that they can be transferred without any additional documentation.

Goodwill

The part of value of a business that is based on good customer relations, high employee morale and other factors.

Green shoe option

Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism in accordance with the specific provisions in DIP Guidelines, which is granted to a company to be exercised through a stabilizing Agent

Growth Fund

Unit trusts or Mutual Funds which invest with the objective of achieving mostly capital growth rather than income. Growth funds are mostly more volatile than conservative income or money market funds because managers invest on shares or property that are subject to larger price movements.

Haircut

(1) The margin or more frequently, the capital tied up when a financial intermediary takes a position.

(2) A commission or fee for execution of a transaction (uncommon).

Hammering The Market

Intensive sale of stocks to drive prices down.

Hand Delivery

Delivery and payment on the date stipulated by the Stock Exchange.

Hedge

An asset, liability or financial commitment that protects against adverse changes in the value of or cash flows from another investment or liability. An unhedged investment or liability is called an “exposure”. A perfectly matched hedge will gain in value what the underlying exposure loses or lose what the underlying exposure gains.

Hedge Funds

Private investment pools that invest aggressively in all types of markets, with managers of the fund receiving a percentage of the investment profits. The name is something of a misnomer since a hedge fund’s raison d’etre is quite the opposite of hedging.

 

Hostile Bid

An effort to gain control of a target company that has not been agreed to by the target’s management and board, usually through a tender offer or an unsolicited proposal to the board. Sometimes called an unsolicited bid.

Hot Money

Short term international capital movements, motivated by interest rate differential or revaluation hopes/ devaluation fears.

Hybrid

Any security which has the character of more than one type of security, including their derivatives.

Hypothecation

Pledging assets against a loan. The ownership of the asset or the income from the asset is not

transferred, except that in default of repayment of loan the asset may be sold to realize its value. Brokers will accept shares as collateral for loans to finance purchase of shares or to cover short sales.

Independent directors

Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect their independence of judgement

Index Fund

A mutual fund which invests in a portfolio of shares that matches identically the constituents of a well known stock market index. Hence changes in the value of the fund mirror changes in the index itself.

Index futures

Futures contract based on an index, the underlying asset being the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive  their value from the value of the underlying index.

Index option contracts

The options contracts, which are based on some index, are known as Index options contract. The buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.

Indian Depository Receipt

A receipt, evidencing an underlying foreign security, issued in India by a foreign company which has entered into an agreement with the issuer and depository, custodian and depository or underwriters and depository, in accordance with the terms of prospectus or letter of offer, as may be prescribed.

Insider

Any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access, connection, to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information

Insider trading

Practice of corporate agents buying or selling their corporation’s securities without disclosing to the public significant information which is known to them but which has not yet affected the price.

Institutional Investors

Organizations those invest, including insurance companies, depository institutions, pension funds, investment companies, and endowment funds.

In-the-Money

A call option is said be in the money when it has a strike price below the current price of the

underlying commodity or security on which the option has been written. Likewise when a put option has a strike price above the current price it is said to be in-the-money.

Intangible Assets

An item of value whose true worth is hard or almost impossible to determine such as goodwill reputation, patents and so on.

Interest rate futures

Financial futures that are considered to be primarily sensitive to interest rate movements.

Interest rate hedges  Position designed to restrict losses that would occur from specific interest rate movements.

Interest rate swap

Contract in which two parties agree to swap interest payments for a predetermined period of time –traded in the OTC market.

Interest Rate Risk

The risk that movements in the interest rates may lead to a change in expected return.

Interim Dividend

A dividend payment made during the course of a company’s financial year. Interim dividend, unlike the final dividend, does not have to be agreed in a general meeting.

Internal Rate of Return (IRR)

The rate at which future cash flows must be discounted in order to equal the cash cost of the investment.

Investment banker

Financial conglomerate which conducts a full range of investment related activities from advising clients on securities issues, acquisitions and disposal of businesses, arranging and underwriting new securities, distributing the securities etc.

Investment Company

A corporation, trust or partnership that invests pooled unit holder/shareholder money in securities appropriate to the organization’s objective. Mutual funds, close–ended funds and unit investment trusts are the three types of investment companies.