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Financial Glossary

Glossary Term
What it Means
Sector Funds

A sector fund or an industry specific fund is a fund that invests solely in businesses that operate in a particular industry or sector of the economy. Sector funds are commonly structured as mutual funds or exchange-traded funds (ETFs). In India, some of the common sectors funds are based on large sectors like banking, IT, auto, FMCG, pharma etc. Sector funds have the potential to give higher returns in an upturn but they also run a high risk of concentration.

Securities

Securities are investment instruments like equity and debt that are traded on a public stock exchange. The securities market basically covers the listed market. These securities can be bought and sold through the stock exchange market mechanism. Securitas include equity, bonds, money market instruments, mutual funds, index ETFs, gold ETFs, RBI bonds gold bonds etc. The securities market in India is regulated by SEBI.

Settlement Date

Settlement Date is a commonly used in the capital markets and denotes the date on which a trade (bonds, equities, foreign exchange, commodities, etc.) settles. That is, the actual day on which transfer of cash or assets is completed and is usually a few days after the trade was done. In the case of equity, the settlement happens on T+2 date and after the settlement the buyers get the credit of shares in their demat account and sellers get the cash in their bank accounts.

Share Certificate

A share certificate is a certificate issued by a company certifying that on the date the certificate is issued a certain person is the registered owner of shares in the company. The key information contained in the share certificate is: the name and address of the shareholder. The number of shares held and the certificates are normally identified by a Folio Number. In India, share certificates have become largely redundant after shifting to demat in the mid 1990s.

Shareholders’ Equity

Shareholders equity is the difference between total assets and total outside liabilities. It is also the Share capital retained in the company in addition to the retained earnings minus the treasury shares. Shareholders equity is also called Share Capital, Stockholder's Equity or Net worth. When we talk of ROE, we are actually referring to the return on this shareholders equity only. Normally, with smaller shareholder equity tend to outperform in the markets.

Shares outstanding

Shares outstanding refers to all shares currently owned by stockholders, company officials, and investors in the public domain, but does not include shares repurchased by a company. The shares outstanding are used for calculation of EPS and that also includes the promoter’s stake. When the company does buyback of shares, the outstanding shares reduce and that is what makes buybacks EPS accretive.

Short

In stock markets, Short is a Position in the market and refers to a technique used when an investor anticipates that the value of a stock will decrease in the short term, perhaps in the next few days or weeks. In a short sell transaction the investor borrows the shares of stock from the investment firm to sell to another investor. In India, it is possible to sell shares for intraday purposes even without owning shares but such positions have to be closed the same day.

Short Sale

A short sale is the sale of a security that the seller has borrowed essentially because the seller does not have delivery of these shares in the demat account. A short seller profits if a security's price goes down. In other words, the trader sells to open the position and expects to buy it back later at a lower price and will keep the difference as a gain. In fact, short sales are looked with suspicion in the Indian markets as they are known to destroy prices of stocks.

Short Selling

Short selling is act of selling a security that the seller has borrowed, essentially because the seller does not own the security in demat account. A short seller profits if a security's price falls from the level at which it was sold. In other words, the trader sells to open the position and expects to buy it back later at a lower price and will keep the difference as a gain. If a short sale is not covered on time, it can lead to auction of shares with losses.

Short-term Debt

Any debt that has an outstanding period of less than 1 year is short term debt. In fact, even a long term bond having residual maturity of less than 1 year will be classified as short term debt. Short-term debt is an account shown in the current liabilities portion of a company's balance sheet. The debt in this liabilities account is usually made up of short-term bank loans taken out by a company or of commercial paper; among other types. It is repaid through current assets.

Short-term Investments

Short term investments are those investments in the balance sheet that have maturity tenure of less than 1 year. This includes long term investments with residual maturity of less than 1 year too. Short term investments are held in the current assets header and are meant to be used for meeting short term current liabilities. Some of the popular short term investments are treasury bills, CP, CDs, call money etc.

Simple Moving Average (SMA)

A simple moving average (SMA) is an arithmetic moving average calculated by adding recent closing prices and then dividing that by the number of time periods in the calculation average. SMA is useful in smoothening the price curve as the moving averages tend to blunt the sharp edges in the price movement.

Small Cap

A small-cap stock is generally a company with a market capitalization of between Rs.2000 crore and Rs.10,000 crore The reason we don't consider market caps below Rs.1000 crore is that they are normally penny stocks. The advantage of investing in small-cap stocks is the opportunity to beat institutional investors. Small-cap stocks have historically outperformed large-cap stocks in the Indian context, although they also entail higher risk.

Special Trading Session

A session during which trading in a listed security is limited is a Special Trading Session. The most popular example of a special trading session is the Muhurat Trading on the day of Diwali wherein the traders open trades for an hour before closing for the day. The special trading session sees actual trading unlike a mock trading session.

Speculator

A speculator is popularly referred to as a punter as he essentially bets on price movements based on odds. The speculator utilizes strategies with a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk.

Split Shares

Once the company completes the stock split (lowering the par value of the stock), the resultant shares are called split shares. Split shares have a distinct ISIN number compared to the pre-split stocks. A stock split or stock divide increases the number of shares in a company. The price is adjusted such that the pre and the post market capitalization of the company remains the same and dilution does not occur. Effectively, the stock split is value neutral.

Spread

A spread is defined as the difference between two prices or two rates. In stock trading, the difference between the current bid and ask prices for a stock (the bid/ask or bid/offer spread). In futures trading, the price difference between the near month and mid month or the mid monthly and the far month are examples of spreads. Spread trading is quite popular where smart traders don't bet on prices but just on spreads narrowing or widening.

Stock Dividend/Distribution

A stock dividend is a dividend payment made in the form of additional shares rather than a cash payout. In India, the stock dividend is popularly referred to as a bonus issue. A bonus ratio of 1:1 means the company will issue 1 free share for each 1 share held on the record date. Bonuses or stock dividends are used when the company has substantial free reserves but short term cash flows may be strained. Stock dividends are also value neutral since the shareholder equity does not change. The movement happens internally from reserves to share capital.

Stock Index Futures

Stock index future is a cash-settled futures contract on the value of a particular stock market index, such as the Nifty 50 or the Bank Nifty or the Sensex. The turnover in case of index futures is generally notionally valued. That means, the valuation of the contract and not the margin. Index futures can be used for trading by taking a long / short view on the index and can also be used for hedging the market risk in the portfolio through Beta hedging.

Stock Price Index

A stock index or stock market index is a barometer of the market as a whole or a section of the market. Stock indices are created by using a representative sample of stocks. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. Stock index is always with reference to a specific base year.

Stock Split

A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Stock split happens to be value neutral since the par value is split. This doubles the number of shares owned but the price halves in case of 1:1 stock split. While stock splits don't create wealth, they are certainly useful in reducing the price of the stock and bringing it within a more acceptable range of prices.

Stop Loss

A stop-loss is an order placed with a broker to sell a security when it reaches a certain price. Stop-loss orders are designed to limit the risk of any trade when the price movement goes against you. Stop loss is like insurance to your trading as it will ensure that even in the worst of conditions the loss will not exceed a particular level.

Stop Loss Order

Stop loss order is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. Setting a stop-loss order for 5% below the price at which you bought the stock will limit your loss to 5%. Normal, in case of buying stocks the stop loss is placed below the support level whereas in case of selling of stocks the stop loss order is placed above the resistance level.

Sub broker and Jobber

Sub brokers and jobbers have for long been the bread and butter of the capital markets. Sub brokers are small regional champions who are affiliated to a particular broker. A single broker can have multiple sub brokers but a sub broker can only have one principal broker. The jobber is not needed as they used to trade on the floor of the house giving buy and sell bids to keep liquidity on the stock. Internet trading has largely done away with the need for sub brokers too.

Support Levels

In stock market technical analysis, support and resistance are certain predetermined levels of the price of a security at which it is thought that the price will tend to stop and reverse. These levels are denoted by multiple touches of price without a breakthrough of the level. Support is on the lower side and long traders typically prefer to place stop losses below the support when they buy and above the resistance when they sell.

Sector Fund

Sector Fund is a fund that invests solely in businesses that operate in a particular industry or sector of the economy. Sector funds are commonly structured as mutual funds or exchange-traded funds (ETFs). Sector funds can outperform when the sector goes into an upturn but also carry a huge concentration risk which is against the basic grain of a diversified mutual fund. Investors normally allocate a very small portion of their corpus to sector funds for alpha.

Sharpe Ratio

Sharpe Ratio is a popular risk adjusted return calculator to evaluate mutual funds to ensure that the fund manager is not taking too much risk to generate returns. It is a way to examine the performance of an investment by adjusting for its overall risk or total. The ratio measures the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk. It uses standard deviation as the denominator.

Sharpe Ratio

Sharpe Ratio Application is based on the Sharpe ratio. The Sharpe ratio is a popular risk adjusted return calculator to evaluate mutual funds to ensure that the fund manager is not taking too much risk to generate returns. It is a way to examine the performance of an investment by adjusting for its overall risk or total. The ratio measures the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk. It uses standard deviation as the denominator. Sharpe Ratio is applied when the portfolio is not properly diversified.

SIP

SIP or a Systematic Investment Plan is an investment vehicle offered by mutual funds to investors, allowing them to invest small amounts periodically instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly but the most popular interval for Indian investors is monthly and can be made to coincide with the income flows. SIPs are based on the principle of rupee cost averaging and help to reduce the cost of holding units.

Specialty Fund

Specialty funds can either be sector funds or they can be thematic funds or they can be a mix of sector funds and thematic funds. Such funds are specialized and carry a high level of risk. Specialty funds are a type of mutual fund that focuses their equity investing within a specific industry or sector of the economy. Some specialty funds cover broad sectors and others direct their investments on an industry group within a sector.

Switching

Switching refers to the process of transferring investments from one mutual funds scheme to another. Within the investment market, investor may wish to switch from one fund to another. A switch is considered as sale of one fund and purchase of another. As a result, the exit load will be applicable as in normal cases and the capital gains tax will also be applicable depending on the period of holding.

Systematic Transfer Plan (STP)

Systematic Transfer Plan(STP) is a plan that allows investors to give consent to a mutual fund to periodically transfer a certain amount / units from one scheme and invest in another scheme of the same mutual fund house. Normally, when you receive a lump sum amount and want the benefit of rupee cost averaging, one can do an STP on a debt fund and systematically sweep a fixed sum out of that corpus into an equity fund to maximise the RCA benefits.

Systematic Withdrawal Plan (SWP)

Systematic Withdrawal Plan (SWP) is a facility offered by mutual funds through which an investor can withdraw a pre-determined amount at pre-decided intervals from his/ her investments in select mutual fund schemes. SWPs are extremely useful in retirement planning as the entire corpus can be extinguished over a period of time. Also SWP is tax efficient because the STCG / LTCG is only levied on the returns withdrawn and not on the principal portion withdrawn.

Systematic Withdrawal Plans

SWP is also called a systematic withdrawal plan and is a facility offered by mutual funds through which an investor can withdraw a pre-determined amount at pre-decided intervals from his/ her investments in select mutual fund schemes.

Secondary Offering

Secondary Offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). Secondary offering does not dilute equity as no fresh shares are issued. Existing shareholders get an exit route through an IPO. A follow on offering is preceded by release of prospectus similar to IPO or a Follow-on Public Offer (FPO). Secondary offering gives an exit to existing shareholders in a transparent manner.

Shareholder

Shareholder is part of owner of a company and could be an individual or institution, including a corporation that legally owns one or more shares of stock in the company. Shareholders may be referred to as members of a company or even as part owners. Shareholders receive dividends from the company and are also entitled to vote in the meetings of the company on various resolutions passed by the board. Value of shares move with the value of the company as a whole.

Syndicate Member

Syndicate Member is one of the key players in the IPO management team and plays a key role in the IPO. The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an 'Underwriter' as syndicate members. The syndicate members are mainly appointed to collect collate and enter the bid forms in a book built issue. Essentially, syndicate members operate like distributors for the IPO.

Selling Hedge or Short Hedge

Selling Hedge or Short Hedge is an investment strategy utilized to protect against the risk of a declining asset price at some time in the future. The short hedge is a neutral non-directional strategy that can be executed by selling futures or buying a put option. It is typically focused on mitigating the risk of a current asset held by any entity.

SPAN Margin

SPAN Margin refers to the initial margin required for the futures or options position and stands for SPAN (Standard Portfolio Analysis of Risk). That is why it is called SPAN margin. SPAN margin covers the risk for 99% possible price volatility in a single day and is supposed to take care of risk on most days except on select Black Swan days. Exposure margin is the margin charged over and above the SPAN margin and they jointly become initial margin.

Spot

Spot or the spot price is the current market price at which an asset is bought or sold for immediate payment and delivery. This has to be contrasted with futures which is deliverable at a future date. It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future. However, even in spot there is normally a time limit of 2 days given to take care of the logistical issues pertaining to delivery.

Spot Month

Spot Month is also called the spot delivery month and it is the nearest month when any futures contract for a given commodity or asset will mature. It is the earliest possible month a futures contract may become deliverable and is dependent on what commodity the contract covers. The spot delivery month is also known as the nearby month or front month and it is contrast to the mid month or the far month contracts in futures and options.

Spreading

Spreading position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates. The three main classes of spreads are the horizontal spread, the vertical spread and the diagonal spread and they are all limited downside plus limited upside strategies that traders can employee either when they are moderately bullish or when they are moderately bearish.

Straddle

Straddle in the options market refers to a strategy that combines two transactions that share the same security, with positions that offset one another. One holds long risk, the other short risk. Specifically, a long straddle implies buying a put option and call options of the same strike price of the same maturity. Straddles are normally purchased when you expect volatility in the stock or the index but you are not sure of the direction of the price movement.

Strangle

Strangle or the long strangle is also known as buy strangle or simply "strangle". It is a neutral strategy in options trading that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock or index or commodity and with the same expiration date. The strangle strategy is an improvement over the straddle but entails a lower cost for the buyer of the strangle due to widening of the strikes and it also entitles a wider margin of protection for the seller of the strangle as the upper and lower strikes are different.

STT on Options

STT on Options as per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) is payable at the rate of 0.05% on sale of an option in securities and at the rate of 0.125 per cent by the purchaser in the event of exercise of in-the-money options. It needs to be noted here that the value of taxable securities transaction relating to an "option in securities" shall be the option premium, in case of sale of an option in securities. However, the value of taxable securities transaction relating to an "option in securities" shall be the settlement price, in case where option is exercised.

Synthetic Call

A synthetic call, or synthetic long call, is an options strategy in which an investor, holding a long position in a stock, purchases an at-the-money put option on the same stock to protect against depreciation in the stock's price. This strategy is called synthetic call because it mirrors the payoffs of a long call option.

Synthetic put

Synthetic put or synthetic long put, is an options strategy in which an investor, holding a short position in a stock, purchases an at-the-money call option on the same stock. A synthetic put is also known as a married call or protective call. This strategy is called synthetic put because it mirrors the payoffs of a long put option.

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KYC is a one-time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. | Investors don’t need to issue cheques while subscribing to IPOs. Just write your bank account number and sign the application form to authorise your bank to make a payment on your behalf in case of allotment. You don’t have to worry about refunds as the money remains in the investor's account. | It has been brought to the notice of SEBI by Central Economic Intelligence Bureau, Department of Revenue, GOI, that certain fraudsters are collecting data of customers who are already into trading either in NSE / BSE and send them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits. Hence, the investors are requested to take note of the above and exercise caution and due care. | Process for filing complaints on the SEBI SCORES website: a. Register on SEBI SCORES | b. Mandatory details for filing complaints on SCORES | Name, PAN, Address, Mobile Number, Email ID | c. Benefits: i. Effective Communication ii. Speedy redressal of the grievances
KYC is a one-time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. | Investors don’t need to issue cheques while subscribing to IPOs. Just write your bank account number and sign the application form to authorise your bank to make a payment on your behalf in case of allotment. You don’t have to worry about refunds as the money remains in the investor's account. | It has been brought to the notice of SEBI by Central Economic Intelligence Bureau, Department of Revenue, GOI, that certain fraudsters are collecting data of customers who are already into trading either in NSE / BSE and send them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits. Hence, the investors are requested to take note of the above and exercise caution and due care. | Process for filing complaints on the SEBI SCORES website: a. Register on SEBI SCORES | b. Mandatory details for filing complaints on SCORES | Name, PAN, Address, Mobile Number, Email ID | c. Benefits: i. Effective Communication ii. Speedy redressal of the grievances

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