Thursday, December 1, 2016

understanding financial lingo

Securities: In India, 'Securities' is defined as per the Securities Contracts Regulation Act (SCRA), 1956. This is a broad term which includes shares, bonds, scrips, stocks or other marketable securities of similar nature of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government.

Equity shares: Equity shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. These shareholders do not enjoy preference regarding payment of dividend and repayment of capital. Equity shareholders are paid dividend out of the profits made by a company.

Bonds: These are debt instruments, which are used for raising capital. Bonds have a maturity of more than one year with the purpose of raising capital. Bonds are typically issued by the government (Central and State) and Corporates. Through the issue of a bond, the issuer undertakes (promises) to repay the principal amount along with a fixed rate of interest on a specified date which is known as the Maturity Date.

Mutual Fund: In India, a mutual fund company is registered with SEBI (Securities Exchange Board of India). This company pools money from individuals/corporate investors and invests in a different underlying securities such as equity shares (Indian and Foreign companies), bonds, debentures, gold, real estate.

Systematic Investment Plan (SIP): SIP allows an investor to invest regularly in a mutual fund scheme by putting a small amount every month.

Dividend: It is a percentage of the face value of a share that a company returns to its shareholders from its annual profits.

Maturity: Maturity of a bond refers to the date, on which the bond matures, or it is the date on which the borrower has agreed to repay the principal. Term-to-Maturity refers to the number of years remaining for the bond to mature.

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