Asset Allocation: The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash,1 to manage risk and return.
Diversification: Spreading investments across various assets and sectors to reduce unsystematic risk.
Financial Goals: Specific objectives for one’s finances, such as retirement, education funding, or purchasing a home.
Financial Independence: Having enough income-generating assets to cover living expenses without relying on employment.
Net Worth: The difference between an individual’s total assets (what they own) and total liabilities (what they owe).
Risk Tolerance: An individual’s capacity and willingness to withstand a decrease in the value of their investments.
Time Horizon: The length of time an investment is expected to be held.
Wealth Management: A comprehensive approach to managing a client’s financial affairs, including investment advice, financial planning, retirement planning, estate planning, and more.
Life Insurance:
Beneficiary: The person or entity designated to receive the death benefit from a life insurance policy.
Death Benefit: The amount of money paid to the beneficiary upon the death of the insured.
Face Value: The stated amount of coverage in a life insurance policy.
Premium: The periodic payment made by the policyholder to keep the life insurance policy in force.
Rider: An optional addition to a life insurance policy that provides extra benefits or coverage.
Term Life Insurance: Life insurance that provides coverage for a specific period (the “term”).
Whole Life Insurance: A type of life insurance that provides coverage for the entire life of the insured and also has a cash value component.
Health Insurance:
Deductible: The amount the insured must pay out-of-pocket before the insurance company starts paying for covered medical expenses.
Co-insurance: A percentage of the covered medical expenses that the insured pays after meeting the deductible.
Exclusions: Specific medical conditions or services that are not covered by the health insurance policy.
Network: A group of doctors, hospitals, and other healthcare providers that an insurance plan contracts with to provide services at a certain cost.
Premium: The periodic payment made by the policyholder to maintain health insurance coverage.
Policy Limit: The maximum amount the insurance company will pay for covered medical expenses within a specific period.
Portfolio Management:
Alpha: A measure of an investment’s performance compared to a benchmark index. Positive alpha indicates outperformance.
Beta: A measure of an investment’s volatility relative to the overall market. A beta of 1 indicates the investment moves in line with the market.
Capital Gains: The profit earned from selling an asset for a higher price than its purchase price.
Diversification: (See definition under Financial Planning)
Investment Horizon: (See definition under Financial Planning)
Liquidity: The ease with which an asset can be bought or sold without significantly affecting its price.
Risk-Adjusted Return: A measure of the return on an investment relative to the amount of risk taken.
Sharpe Ratio: A measure of risk-adjusted return that calculates the excess return per unit of total risk.
Systematic Risk (Market Risk): The risk inherent to the entire market or market segment and cannot be diversified away.
Unsystematic Risk (Specific Risk): The risk associated with a particular company or industry that can be reduced through diversification.
Family Wealth Management:
Estate Planning: The process of arranging for the management and transfer of assets after one’s death.
Philanthropy: Charitable giving.
Trust: A legal arrangement where assets are held by a trustee for the benefit of a beneficiary.
Will: A legal document that outlines how a person’s assets should be distributed after their death.
Motor Insurance:
Comprehensive Coverage: Motor insurance that covers damage to your own vehicle as well as liability for damage or injury caused to third parties.
Liability Coverage: Motor insurance that covers damages or injuries you cause to others in an accident.
No-Claim Bonus (NCB): A discount on the premium offered for not making any claims during the previous policy period.
Premium: The periodic payment made by the policyholder to maintain motor insurance coverage.
Third-Party Insurance: The minimum legal requirement in many places, covering liability for damage or injury caused to third parties.
Fixed Deposits:
Cumulative Fixed Deposit: A type of fixed deposit where the interest earned is reinvested and paid along with the principal at the time of maturity.
Interest Rate: The percentage of the principal amount that is paid as interest over a specific period.
Maturity Date: The date on which the principal amount and the accumulated interest become payable to the depositor.
Non-Cumulative Fixed Deposit: A type of fixed deposit where the interest is paid out to the depositor at regular intervals (e.g., monthly, quarterly, annually).
Penalty for Premature Withdrawal: A charge levied by the financial institution if the depositor withdraws the fixed deposit before its maturity date.
Principal Amount: The initial amount of money deposited in a fixed deposit.
Tenure: The fixed period for which the money is deposited in a fixed deposit.
Mutual Funds:
Asset Management Company (AMC): A company that manages the pooled investments of a mutual fund.
Expense Ratio: The annual cost of operating a mutual fund, expressed as a percentage of the fund’s assets.
Net Asset Value (NAV): The per-share value of a mutual fund, calculated by dividing the total value of the fund’s assets minus2 liabilities by the number of outstanding shares.3
Scheme Information Document (SID): A document containing detailed information about a particular mutual fund scheme.
Systematic Investment Plan (SIP): A method of investing a fixed amount of money in a mutual fund at regular intervals.
Systematic Withdrawal Plan (SWP): A facility that allows investors to withdraw a fixed amount of money from their mutual fund investments at regular intervals.
Types of Mutual Funds: Equity funds, debt funds, hybrid funds, etc., each investing in different asset classes.
