Alpha: is a statistical way to evaluate the risk-adjusted momentum of an
investment. Alpha incorporates both risk and reward.
Annuity: A form of investment contract sold by life insurance
companies, which guarantees a fixed or variable payment to the annuitant at
some specified time in the future, usually retirement.
Asset Allocation (or Allocation Mix): Allocation is the process of
deciding which investment option, or combination of investment options, are
best aligned with your financial goals, needs and time horizon, followed by
the distribution of your assets accordingly. Asset allocation allows you to
control your risk-level, potentially maximizing your return.
Back-End Load: A redemption charge commonly incurred when you
withdraw from certain mutual funds. We recommend only mutual funds that
charge no loads - either on the front end or back end. This gives you the
maximum flexibility to switch investments as the fund's performance or
market conditions change.
Basis Point: Each percentage point of the yield in bonds equals 100
basis points: one basis point is1/100 of 1.0% (0.01%).
Beta: measures a stock's volatility when compared to the volatility
of the market as a whole. Stocks with a beta of more than one are more
volatile than the market. Those with a beta of less than one have lower
volatility and tend to move at a slower pace than the market.
Bear Market: A prolonged period of falling stock prices, typically by
20% or more off the peak price.
Blue Sky Laws are state securities laws. These laws apply to the
registration of sales personnel (registered representatives) and the
registration and sale of securities.
Bull Market: A period of market conditions that are steadily
reflecting growth in the economy with climbing stock prices.
Capital Gain: The difference between your sale price and your cost,
when you sell an investment for a profit.
Capital Loss: Many investors also hesitate to sell for the opposite
reason - because they are unwilling to accept a capital loss or any other
loss for that matter.
Dead-Cat Bounce: A temporary recovery by a market after a prolonged
decline (or bear market). In most cases, the recovery is short-lived and the
market decline will soon resume.
Derivatives: are products, instruments, or securities which are
derived from another security. Many derivatives - such as futures and
options - are traded on specialized and regulated exchanges and can be
bought freely by investors.
But there are also hundreds of different kinds of derivatives that are
private, one-on-one contracts between two banks or other financial
institutions, which are not as closely regulated.
Diversification: A way to help balance the risk of losses by
spreading out your assets among various investments such as stocks, bonds
and money market funds. A decline in one investment may be offset by a rise
Dividend: A dividend is a portioned distribution of a company's
earnings, cash flow or capital to shareholders, in either cash or additional
Equity Options: Securities that give the holder the right, but not
the obligation, to buy (call) or sell (put) a specific number of shares, at
a specific price (see Strike Price), for a specific time period. Typically,
one option contract is for 100 shares. The options may be for individual
stocks, or they may be tied to stock market indexes such as the S&P 500 or
the Nasdaq-100. The advantage of purchasing options is that your risk is
strictly limited to the price you pay for them. The disadvantage is that, in
order to profit from options, the expected market move must take place
before the option expires.
Euro: The new European currency, which was designed with the goal of
helping to unite the economies of Western Europe and potentially compete
with the U.S. dollar as an international currency. The euro was launched
strictly for interbank transactions in January 1999. Starting in January,
2002, it was launched as an actual currency.
Eurodollar: Not to be confused with the new European currency,
eurodollars are strictly U.S. dollar time deposits (much like CDs) that are
held in overseas banks, mostly in Europe. These deposits are so large and so
actively traded that the Chicago Board of Trade has created futures
contracts for institutions and investors that want to trade in eurodollars;
and these contracts have become one of the most actively traded instruments
in the world.
Hedge: is an investment designed to help protect against losses in
another investment or position. For example, if you hold a large portfolio
of stocks that you fear will lose value in the months ahead, but you cannot
sell, you can buy investments designed to go up as stocks decline. Put
options or specialized mutual funds provide some of the most common
have nothing to do with a Hedged fund, in fact the name is an oxymoron.
Hedge Funds are usually reserved for high net worth customers who can afford
to loose all of their investment.. These funds generally invest in
derivatives and other exotic instruments.
Net Asset Value (NAV): The value of a fund's underlying securities.
It is calculated at the end of the trading day. For a mutual fund, the net
asset value per share usually represents the fund's market price, subject to
a possible sales or redemption charge.
OTC: Over-the-Counter (OTC) is a market outside an organized exchange
in which transactions are conducted through a telephone or computer network
connecting dealers such as the Nasdaq.
Price/Earnings (P/E) Ratio: The P/E ratio represents the relationship
between a company's stock price and earnings. For example, a P/E of 10 means
that the company is selling for ten times its current earnings per share.
Also known as "multiple," the ratio is calculated by dividing the current
price of the stock by the current earnings per share.
Sleeper: Stock in which there is little investor interest, but which
has significant potential to gain in price once its attractions are
Strike Price: Also known as the exercise price. The price at which
the holder (buyer) of an option can purchase (call) or sell (put) the
Time Horizon: The anticipated amount of time you will be investing in
order to meet your individual financial goals. Generally speaking, the
longer your time horizon, the better situated you are to recover from
unfavorable investment decisions.
Volatility: A measure of fluctuation in the market price of a
security. A volatile stock or fund has frequent and large price swings.
Statistically, the measure most commonly used for volatility is "standard
deviation," the amount the price of a stock or mutual fund varies over time.
Yield: There are many uses for this term, so be sure not to confuse
(1) Current Yield on Bonds: This is the "coupon rate" - the interest
rate stated in the description of the bond, divided by the purchase price.
For example, if you are buying a U.S. Treasury 5% bond for a price of 80
(out of a 100 points), the current yield is 5 divided by 80 x 100 = 6.25%.
(2) Yield to Maturity on Bonds: This is a more complicated formula.
It considers all aspects including purchase price, redemption, value, time
remaining to maturity, etc. You can find it in most bond listings of various
(3) Yield on Stocks: This is the dividend per share paid by the
company in proportion to the current cost of each share. For example, if you
buy a stock for an average price of $65, and the stock paid $1.43 in
dividends last year, the dividend yield on this stock is 2.2% ($1.43
dividend per share divided by the average price of $65 per share).
(4) Yield on Stocks:
Can also be calculated by dividing the dividend paid over the Par Value of
the stock. For example the Par Value (IPO price) is Rs 10, and if a company
pays Rs 2 in dividends it will be treated as 20% dividend. So be careful
when comparing one market’s yield with anothers.
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