📚 Investment Terminology Guide
Master 100+ Essential Stock Market Terms & Definitions
🎯 Welcome to India’s Most Comprehensive Investment Dictionary
Whether you’re a beginner starting your investment journey or an experienced trader looking to brush up on terminology, this guide covers all essential terms used in Indian stock markets, mutual funds, and investment planning. Each term includes clear definitions, practical examples from BSE/NSE, and real-world applications.
Basic Investment Terms
Asset
Any item of economic value owned by an individual or corporation. In investing, assets include stocks, bonds, real estate, gold, and cash.
Example: If you own 100 shares of Reliance Industries, those shares are your financial assets. Similarly, your house, gold jewelry, and bank deposits are all assets.
Bull Market
A period of rising stock prices and investor optimism. Generally defined as a 20% or more increase in stock prices from recent lows.
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Example: The Indian stock market experienced a strong bull run from March 2020 to October 2021, with Sensex rising from 25,000 to over 60,000 points.
Bear Market
A period of declining stock prices and investor pessimism. Typically defined as a 20% or more decline from recent highs.
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Example: During the COVID-19 pandemic in March 2020, Indian markets fell from 42,000 to 25,000 points in just a few weeks, representing a classic bear market.
Dividend
A payment made by companies to shareholders from their profits. Dividends can be paid in cash or additional shares.
Example: HDFC Bank declared a dividend of ₹17.50 per share in 2024. If you own 100 shares, you would receive ₹1,750 as dividend income.
Equity
Ownership interest in a company represented by shares of stock. Equity holders have voting rights and claim on company profits.
Example: When you buy shares of Tata Consultancy Services (TCS), you become an equity shareholder and partial owner of the company.
Fixed Deposit (FD)
A financial instrument where money is deposited for a fixed period at a predetermined interest rate. Principal and interest are guaranteed.
Example: A 1-year FD with SBI at 7% interest rate. If you invest ₹1,00,000, you’ll receive ₹1,07,000 after one year.
Financial Ratios & Valuation
P/E Ratio (Price-to-Earnings)
The ratio of a company’s share price to its earnings per share. It indicates how much investors are willing to pay for each rupee of earnings.
P/E Ratio = Current Share Price ÷ Earnings Per Share
Example: If Infosys trades at ₹1,500 per share and has EPS of ₹75, its P/E ratio is 20 (₹1,500 ÷ ₹75). This means investors pay ₹20 for every ₹1 of earnings.
Market Capitalization
The total value of a company’s shares in the stock market. It’s calculated by multiplying share price by total number of shares.
Market Cap = Share Price × Total Outstanding Shares
Example: If Reliance has 676 crore shares outstanding and trades at ₹2,500 per share, its market cap is ₹16,90,000 crores.
Book Value
The net worth of a company as recorded on its balance sheet. It’s calculated as total assets minus total liabilities.
Book Value = Total Assets – Total Liabilities
Example: If a company has assets worth ₹1,000 crores and liabilities of ₹400 crores, its book value is ₹600 crores.
EPS (Earnings Per Share)
The portion of a company’s profit allocated to each outstanding share. It’s a key indicator of company profitability.
EPS = Net Income ÷ Outstanding Shares
Example: If TCS reports net profit of ₹38,000 crores and has 380 crore shares outstanding, its EPS is ₹100 per share.
ROE (Return on Equity)
Measures how efficiently a company uses shareholders’ equity to generate profits. Higher ROE indicates better performance.
ROE = Net Income ÷ Shareholders’ Equity × 100
Example: If a company has net income of ₹200 crores and shareholders’ equity of ₹1,000 crores, its ROE is 20%.
Debt-to-Equity Ratio
Measures the relative proportion of debt and equity in a company’s capital structure. Lower ratios indicate less financial risk.
Debt-to-Equity = Total Debt ÷ Total Equity
Example: If a company has debt of ₹300 crores and equity of ₹600 crores, its debt-to-equity ratio is 0.5, indicating conservative financing.
Trading & Market Terms
Demat Account
A dematerialized account that holds shares in electronic form. Essential for trading in Indian stock markets.
Example: When you buy 100 shares of HDFC Bank through your broker, these shares are credited to your demat account in electronic form instead of physical certificates.
Intraday Trading
Buying and selling stocks within the same trading day. Positions must be closed before market closing to avoid delivery.
Example: You buy 1000 shares of Wipro at ₹400 at 10 AM and sell them at ₹405 at 2 PM on the same day, making a profit of ₹5,000.
Stop Loss
An order to sell a stock when it reaches a certain price to limit losses. It helps protect against significant downside risk.
Example: You buy shares at ₹1,000 and set a stop loss at ₹900. If the price falls to ₹900, your shares will be automatically sold to limit your loss to ₹100 per share.
Limit Order
An order to buy or sell a stock at a specific price or better. It gives you control over the execution price.
Example: You place a limit order to buy ITC shares at ₹450. The order will only execute if the price drops to ₹450 or below.
Circuit Breaker
Price limits set by exchanges to prevent extreme volatility. Trading halts when a stock hits upper or lower circuit.
Example: If a stock has a 10% circuit limit and opens at ₹100, it can only trade between ₹90 and ₹110 for that day.
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).
Example: If the bid for a stock is ₹995 and the ask is ₹1,000, the bid-ask spread is ₹5. This represents the cost of immediate execution.
Mutual Fund Terms
NAV (Net Asset Value)
The per-unit value of a mutual fund scheme. It’s calculated by dividing the total value of assets minus liabilities by the number of units.
NAV = (Total Assets – Total Liabilities) ÷ Total Units
Example: If a mutual fund has assets worth ₹1,000 crores, liabilities of ₹50 crores, and 9.5 crore units outstanding, its NAV is ₹100 per unit.
SIP (Systematic Investment Plan)
A method of investing a fixed amount regularly in mutual funds. It helps in rupee cost averaging and disciplined investing.
Example: You invest ₹5,000 every month in SBI BlueChip Fund. This amount is automatically debited from your account and invested at the prevailing NAV.
Expense Ratio
The annual fee charged by mutual funds to manage your money. It includes management fees, administrative costs, and other expenses.
Example: If a fund has an expense ratio of 1.5% and you invest ₹1,00,000, you’ll pay ₹1,500 annually as fees regardless of the fund’s performance.
Exit Load
A fee charged when you redeem mutual fund units before a specified period. It discourages frequent trading.
Example: A fund has 1% exit load if redeemed within 1 year. If you redeem ₹50,000 worth of units within 6 months, you’ll pay ₹500 as exit load.
ELSS (Equity Linked Savings Scheme)
Tax-saving mutual funds with a mandatory 3-year lock-in period. Investments qualify for Section 80C deduction up to ₹1.5 lakh.
Example: You invest ₹1,50,000 in Axis Long Term Equity Fund (ELSS). This investment reduces your taxable income by ₹1,50,000 and potentially saves ₹46,800 in taxes (31% tax bracket).
Alpha
Measures a fund’s performance relative to its benchmark. Positive alpha indicates outperformance, negative alpha indicates underperformance.
Example: If a fund generates 15% returns while its benchmark gives 12%, the fund has an alpha of +3%, indicating superior performance.
Advanced Investment Terms
Volatility
The degree of variation in a stock’s price over time. High volatility indicates larger price swings, while low volatility suggests stable prices.
Example: A stock that fluctuates between ₹90-₹110 daily has higher volatility than one that moves between ₹98-₹102.
Beta
Measures a stock’s sensitivity to market movements. Beta of 1 means the stock moves with the market, >1 means more volatile, <1 means less volatile.
Example: If a stock has beta of 1.5 and the market rises 10%, the stock is expected to rise 15%. If market falls 10%, stock may fall 15%.
Sharpe Ratio
Measures risk-adjusted returns by comparing excess return to volatility. Higher Sharpe ratio indicates better risk-adjusted performance.
Sharpe Ratio = (Portfolio Return – Risk-free Rate) ÷ Standard Deviation
Example: A portfolio with 15% returns, 6% risk-free rate, and 12% volatility has a Sharpe ratio of 0.75, indicating good risk-adjusted returns.
CAGR (Compound Annual Growth Rate)
The mean annual growth rate of an investment over a specified period longer than one year. It assumes reinvestment of returns.
CAGR = (Ending Value ÷ Beginning Value)^(1/n) – 1
Example: If you invest ₹1,00,000 and it grows to ₹2,00,000 in 5 years, the CAGR is 14.87%, meaning your investment doubled with consistent 14.87% annual growth.
Standard Deviation
A statistical measure of volatility. It shows how much returns deviate from the average. Higher standard deviation means higher risk.
Example: A fund with average returns of 12% and standard deviation of 8% means returns typically range between 4% to 20% (12% ± 8%).
Correlation
Measures how two investments move in relation to each other. Ranges from -1 to +1. Perfect correlation (+1) means they move together, negative correlation (-1) means they move opposite.
Example: Gold and equity often have negative correlation. When stock markets fall, gold prices typically rise, providing portfolio diversification benefits.
Market Indices & Benchmarks
Sensex
The benchmark index of BSE comprising 30 largest and most liquid stocks. It represents the overall health of Indian stock market.
Example: Sensex includes companies like Reliance, TCS, HDFC Bank, and Infosys. When these stocks perform well, Sensex rises, indicating positive market sentiment.
Nifty 50
NSE’s flagship index comprising 50 large-cap stocks across various sectors. It’s widely used as a benchmark for Indian equity performance.
Example: Many index funds and ETFs track Nifty 50. When you invest in UTI Nifty Index Fund, your returns mirror Nifty 50’s performance.
Nifty Next 50
Comprises the next 50 largest companies after Nifty 50. It represents mid-cap to large-cap stocks with growth potential.
Example: Companies like Adani Ports, SBI Life, and Grasim Industries are part of Nifty Next 50, offering exposure to emerging large-cap opportunities.
Sectoral Indices
Indices that track specific sectors like banking, IT, pharma, or auto. They help investors focus on particular industries.
Example: Nifty Bank Index includes HDFC Bank, ICICI Bank, and SBI. If you’re bullish on banking sector, you can invest in banking-focused funds or ETFs.
Tax & Regulatory Terms
LTCG (Long Term Capital Gains)
Tax on profits from selling equity investments held for more than one year. Currently taxed at 10% for gains above ₹1 lakh annually.
Example: You buy shares for ₹1,00,000 and sell after 2 years for ₹2,00,000. Your LTCG is ₹1,00,000, and tax payable is ₹10,000 (10% of gains above ₹1 lakh exemption).
STCG (Short Term Capital Gains)
Tax on profits from selling equity investments held for less than one year. Taxed at 15% regardless of income level.
Example: You buy shares for ₹50,000 and sell after 6 months for ₹70,000. Your STCG is ₹20,000, and tax payable is ₹3,000 (15% of gains).
STT (Securities Transaction Tax)
Tax levied on buying and selling of securities. Rates vary by transaction type and are automatically deducted by brokers.
Example: When you sell equity shares, STT of 0.1% is charged on the transaction value. For a ₹1,00,000 sale, you pay ₹100 as STT.
TDS (Tax Deducted at Source)
Tax deducted on various income sources including dividends, interest, and capital gains. Companies deduct TDS before paying income.
Example: If you receive ₹10,000 as dividend from a company, TDS of 10% (₹1,000) is deducted, and you receive ₹9,000 in your account.
SEBI (Securities and Exchange Board of India)
The regulatory body that oversees Indian securities markets. It protects investor interests and ensures fair trading practices.
Example: SEBI regulates mutual funds, stock exchanges, and brokers. It sets rules for IPO processes, disclosure requirements, and investor protection measures.
Technical Analysis Terms
Support Level
A price level where a stock tends to find buying interest and stops falling. It acts as a floor for the stock price.
Example: If HDFC Bank consistently bounces back from ₹1,600 level multiple times, ₹1,600 becomes a strong support level for the stock.
Resistance Level
A price level where a stock faces selling pressure and struggles to move higher. It acts as a ceiling for the stock price.
Example: If Reliance repeatedly fails to cross ₹2,800 and falls back, ₹2,800 becomes a resistance level that needs to be broken for further upside.
Moving Average
The average price of a stock over a specific period. It smooths out price fluctuations and helps identify trends.
Example: 50-day moving average of TCS at ₹3,500 means the average closing price over the last 50 days is ₹3,500. If current price is above this, it indicates uptrend.
RSI (Relative Strength Index)
A momentum oscillator that measures the speed and change of price movements. Values above 70 indicate overbought, below 30 indicate oversold.
Example: If Wipro’s RSI reaches 80, it suggests the stock is overbought and may face selling pressure. RSI of 25 suggests oversold conditions and potential buying opportunity.
Volume
The number of shares traded during a specific period. High volume confirms price movements, while low volume suggests weak trends.
Example: If ITC breaks above resistance level with 3x normal volume, it confirms the breakout. Low volume breakouts are often false and may reverse.
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