The term ‘financial planning’ may alarm many, especially if you are new to investing.. While some consider it to be replete with jargon, for some, it’s the sheer extensiveness of the process. However, it may not be as daunting, if you take it one step at a time. We list out a few terms that will help anyone who is starting out. After all, knowledge is power.
1. Stock: Simply put, a stock is referred to a certificate/proof of one’s ownership of a company.
2. Share: It refers to the stock certificate of a certain company. For instance, if an investor buys shares in a company, he/she is called a shareholder, and shares part of the profits. At the same time, he/she are also at the risk of bearing losses if the company isn’t performing well.
3. Bond: Bond is the loan made by an investor to a borrower.
4. Order: This term is used when one intends to sell or buy shares at a certain price range.
5. Bid: It is the amount one is willing to pay for a company share.
6. Ask: As the term suggests, the ‘ask’ is the price at which one is willing to sell the share.
7. Bid-ask spread: More often than not, there is a difference in the amount one is willing to spend for the share and the asking price. In the world of investing, a trade can happen when the two match. For example, if the lowest price quoted by a company A for a particular share is Rs 10, and the maximum a buyer is willing to pay for it is Rs 8, no trade can materialise.
8. Mutual Funds: Don’t let limited funds deter you from investing. Mutual funds let you invest across a large number of stocks by pooling your money with other investors. If you are looking to identify the funds to invest in, take the guidance of a financial advisor.
9. Portfolio: Simply put, a portfolio is the collection of all investments that the investor has made and can be referred to, as and when required.
10. Index: This is a benchmark used by investors and portfolio managers to determine market performance. Nifty and Sensex are some examples of this benchmark.
11. Dividends: As explained above, a shareholder makes profit when the company performs well. Dividend is part of the profit that the corporation distributes amongst its shareholders.
12. Bull market: When the stock prices in a market are on the rise, it’s termed as a bull market.
13. Stock exchange: This is a facility where all stocks are listed for selling or buying. As India goes digital, all stocks are now online and one can easily access them through a brokerage firm.
14. Liquidity: This refers to how easily a stock can be sold off. A share which can be easily sold or has a high trade volume is considered highly liquid.
15. Over-the-counter: All stocks are listed on the stock exchange, but if you choose to trade a security that isn’t listed, it will be called an over-the-counter trade.