This article will be explaining a few terms which can be commonly seen in the stock market. If you know the below terms it will be a cakewalk to read finance articles. I will be updating this list if I feel some important terms are missing.
TIPS: Please read the bolded title, if you know it already skip to the next title.
Stock Exchange - It is a place where the exchange of stocks takes place. To simply put, it is the place where trading occurs. NSE(National Stock Exchange), BSE(Bombay Stock Exchange) are stock exchanges of India. NYSE(New York Stock Exchange), Nasdaq are stock exchanges of the US.
Index - Stock Exchanges have their own index to track the performance of the stock market. Eg: Nifty50, Sensex.
Nifty50 - Everything must have a benchmark to measure the performance. So in order to measure the performance of stocks listed in NSE, NSE has its own index known as Nifty50. Nifty50 index comprises of top 50 companies/stocks from various sectors like IT, healthcare, banks, infrastructure, automobile, pharma, etc. To know how nifty50 is calculated, read on their website.
Sensex - Sensex is also an index used for measuring the performance of BSE. Sensex is similar to Nifty50 instead of 50 stocks in NSE, Sensex derives its index based on the top 30 stocks listed in BSE. Sensex calculation.
Stocks / Equity / Shares - You will often hear these terms when you get into the stock market. All the three terms mean the same (i.e) a piece of business/share of the company.
Mutual Funds - Mutual funds are money collected from common people like us and high net worth individuals as well in order to invest and compound it. The money collected is put into the stock market on our behalf. We are entrusting our money to a mutual fund house(SBI, ICICI, HDFC, UTI etc) so that they will choose the stocks on behalf of us and invest our money and grow it. For doing this they charge us a nominal fee in the name of expense ratio.
Portfolio - Portfolio is nothing but a collection of stocks and other instruments which you own like mutual funds, gold, crypto, etc
Net Worth - Net worth is the total asset a person or a corporation owns, minus the liabilities they owe.
Assets & liabilities - Click here to read in detail about assets & liabilities
Intraday trading - When you buy and sell shares during the same day, it is known as intraday trading. It is also commonly called day trading.
Swing trading - Swing trading is when you buy shares on a particular day and sell it after a few days or a few weeks.
Demat Account - In the past people used to have a piece of paper which depicts all the details of the shares they have bought. Later on, it has been converted into electronic format which is known as a dematerialized format. So, the shares bought are stored in electronic format in the Demat account.
IPO - IPO is Initial Public Offering. Companies announce IPO when they want to raise money from the public for various purposes like the expansion of business, to reduce the debt of the company, etc.
Primary Market - Primary market is when a company announces an IPO(Initial Public Offering) where HNI, DII, Retail investors can participate and bid for the shares of the company.
Secondary Market - Secondary market is a place where trade happens between investor to the investor after the listing of the company in the stock exchange. This is usually referred as stock market.
Capital gains - When you sell an asset that you have like gold, FD, Stocks, etc you will gain some profits. Those profits are called capital gains. Capital gains are subjected to taxes
Dividend - When you hold a share of the company & if the company performs well and a portion of the profits are distributed to the shareholders known as a dividend.
Depository - Now we know that what a Demat account is, these Demat accounts are maintained by a depository. There are two major depositories i.e NSDL(National Securities Depository Ltd) and CDSL(Central Depositories Services India Ltd)
Broker - A broker is a person who sells and buys on our behalf. Eg. Zerodha, Upstox, Sharekha, Motilal Oswal etc
Depository Participant - Depository participants are the agents of a depository such as NSDL or CDSL. When a user buys or sells the depository participant acts as an intermediatory and does all the buying and selling on behalf of the user. For example, if you use Zerodha(Broker) for trading then Zerodha will be your depository participant.
Clearing Corporation - When a trade happens between two parties, the clearing corporation ensures that the trades are settled in your Demat account within 3 days. They have the right to take any action if anything goes wrong in the settlement of the trade.
Promoters - owners of the company
Bonus Shares - Bonus shares are issued to split the stock price and encourage the retail investor participant. For example, Infosys’s stock price is 4000, and when it is very difficult for retail investors to buy Infosys so Infosys comes up with a stock split in the ratio of 5:1. So existing shareholders will get 5 additional shares for every 1 share they hold. After the bonus is issued the stock will be split according to the market price.
RII - Retail individual investors (general public) investment of < 2 Lac (comparatively poor)
HNI - High Networth Individuals (general public) investment of > 2 Lac (comparatively rich)
DII - Domestic institutional investor (Insurance companies, mutual funds, banks)
FII / FPI - Foreign Institutional investor / Foreign Portfolio Investor (Foreign funding, EURO, pounds dollars are converted into rupees and invested)
AMC - AMC is Asset Management Company. All the mutual fund houses are called as AMC. For example, if you invest in kotak mutual funds, the Kotak AMC will do all the research analysis and invest your money in the stock market, bonds, gold, etc depending on the type of fund you invest
Bonds - Bonds are debt instruments. If a government needs money for an infrastructure project, they will create a bond and approach the public to raise money saying we will pay x% interest if you provide your money for this project. If you purchase a debt mutual fund, the money which you paid to buy the fund will be invested in bonds.
Debentures - Debentures are also similar to bonds. They are also loan instruments. Usually, banks issue a debenture promising a certain return of interest
Pledging of shares - If promoters need money they go to the bank and the bank asks for security and the shares which promoters hold are given to the bank which is pledged shares.
Annual Report - Every company provides an annual report at the end of the year. The annual report contains important information about the companies activities, profit and loss statement, future vision, management activities, etc. If you want to invest in a stock/company for the long term, it is important to know read the annual report.
Factsheet - Factsheets are for mutual funds. Every mutual fund will have a factsheet that contains important information about the fund like expense ratio, risk profile and the purpose of the fund, etc. Before putting your money into a mutual fund, it is advisable to read the factsheet to know the details of the fund
Large Cap - Basically companies are divided into Large-cap, Midcap, and Small-cap based on market capitalization. Companies that have more than 20000 crore market cap are categorized as Large-cap companies. Eg TCS, MRF, ITC, etc
Mid Cap - Companies that have a market cap of more than 5000 crores but less than 20000 crores are called Mid Cap companies. eg. Exide, Mind Tree, Bata India, etc
Small-Cap - Companies that have a market cap of less than 5000 crores are Small cap companies Eg. Happiest minds, IDFC, LT foods, etc
NOTE: If you feel any important terms are missed, kindly comment in this article so that others can also know. I will also update the article based on your comments.
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