Glossary

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Actuarial Science

 Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in insurance, finance and other industries and professions. Actuaries are professionals trained in this discipline. (source: Wikipedia)

 

Alternative Investment Funds

An alternative investment refers to investments made in assets other than stocks, bonds or cash. According to Indian regulations, the term Alternative Investment Fund (AIF) refers to a privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP). Being private, these funds do not fall under the jurisdiction of any regulatory body in India.

Due to their nature, AIFs are complex, unregulated and fairly risky. The investments in AIFs can include private equity, hedge funds, derivative contracts, commodities, real estate as well as art and artefacts.

 

Bachelor of Banking & Insurance (BBI)

Bachelor of Banking & Insurance (BBI) is a three-year undergraduate course divided into six semesters. It is structured to provide training in the field of finance, banking, accounting, insurance law, insurance regulations, among others. (source: Collegedehko.com)

 

Bachelor of Business Administration (BBA)

The Bachelor of Business Administration (BBA) is a 3-year undergraduate course offering knowledge and training in management and leadership skills. In the course, students learn administration and management of business operations and related fields like accounting, finance, project management and marketing.

 

Bachelor of Business Management (BBM)

Bachelor of Business Management (BBM) is an undergraduate course of 3 years that helps students understand the functioning of a business organisation. The program exposes students to subjects such as accounting, business law, ethics, economics, finance, marketing, management information systems, etc.

 

Bachelor of Commerce (B.Com)

A Bachelor of Commerce (B.Com) is an undergraduate degree in commerce (or business) and related subjects. It is designed to provide students with a wide range of managerial skills, while building competence in a particular area of business. (source: Wikipedia)

 

Bachelor of Engineering (B.E.)

A Bachelor of Engineering (B.E.) is a first professional undergraduate academic degree awarded to a student after three to five years of studying engineering at an accredited university. (source: Wikipedia)

 

Bachelor of Science (B.Sc)

A Bachelor of Science (B.Sc) is an undergraduate degree lasting three or four years, allowing students to develop the interest in a science subject (major) and its related fields.

 

Bonds/Fixed Income

Fixed Income investments are a conservative asset class, as they offer lower risks and lower returns than equity. Fixed income securities represent a loan given to an entity, and promise a ‘fixed’ amount paid as interest at defined intervals for a ‘fixed’ duration. Investors are also assured that the capital invested will be returned in full at the end of the duration. Examples of fixed income investments include Government or Gilt Bonds, Corporate Bonds, Treasury Bills and Certificates of Deposit.

Fixed income securities are subject to interest rate risk, wherein the market interest rates rise higher than the promised rate. This makes the investment lose value in the market and also means that the investor has locked funds in a lesser earning opportunity. Fixed income investments are also subject to credit default risk, where the borrowing entity goes bankrupt and cannot repay the principal amount or interest. 

 

Cash Flow Planning

Cash flow planning is one of the essential building blocks of wealth management, and works around the principle that one should spend less than one earns. It involves studying an individual’s monthly and annual cash flow position based on inflow (like salary, interest, dividends, rental income, etc.) and outflow (like bills, rent/mortgage, premiums, discretionary expenses, etc.) to determine whether the person is cash flow positive or negative. This exercise offers clarity on true savings potential and allows people to determine how and at what rate can they save to achieve their financial goals.

 

Certified Financial Planner (CFPCM)

The Certified Financial PlannerCM credential is the most desired and respected global certification for those seeking to demonstrate their commitment to competent and ethical financial planning practice. Certified Financial Planner professionals meet initial and ongoing education, experience and professional development requirements, pass a rigorous exam that assesses competency, and adhere to a code of ethics, pledging to provide financial planning in the interests of clients and with the highest ethical and professional standards. (source: india.fpsb.org)

 

Certified Financial Transitionist (CeFT)

Certified Financial Transitionist (CeFT) is a professional designation issued by the Financial Transitionist Institute, USA. This programme is only for professionals with an established practice in financial services, minimum 5 years of direct client service experience, and either Certified Financial Planner (CFP), Certified Investment Manage Analyst (CIMA) or Certified Financial Advisor (CFA) designation. The programme helps train financial advisers on helping clients through life transitions that affect their money, or vice versa. (source: finra.org | suddenmoney.com)

 

Chartered Accountant (CA)

In India, Chartered Accountants are regulated by the Institute of Chartered Accountants of India (ICAI) which was established by the Chartered Accountants Act, 1949. Associate members of the ICAI are entitled to add the prefix CA to their names. To become a Chartered Accountant (CA), students can take the CA Foundation Course after 12th grade. Alternatively, graduates may train as an articled assistant for three years in a chartered firm before appearing for final exam. A comprehensive 100 hours of information technology training and an orientation programme for soft skills development have to be completed before being articled. (source: Wikipedia)

 

Chartered Financial Analyst (CFA)

The Chartered Financial Analyst (CFA) is a professional credential offered internationally by the US-based CFA Institute to investment and financial professionals. The program covers a broad range of topics relating to investment management, financial analysis, quantitative analysis, equities, fixed income and derivatives, and provides a generalist knowledge of other areas of finance. Earning the CFA charter can take four years or more, and require candidates to pass the Level I, Level II and Level III exams and complete four years of work experience. (source: Wikipedia)

 

Chartered Trust and Estate Planner (CTEPTM)

Chartered Trust and Estate PlannerTM (CTEPTM) is unique and the only Estate Planning and Trust Planning certification in India. This certification comprehensively deals with all the aspects of Estate Planning like Intergenerational Wealth Transfer, Wealth Preservation, Trust Planning, International Succession Planning and International Estate and Gift Taxation. (source: aafmindia.co.in)

 

Chartered Wealth Manager (CWM®)

The Chartered Wealth Manager® (CWM®) designation programme offered by American Academy of Financial Management® is the highest global designation in Wealth Management, Private Banking and Wealth Advisory. The the CWM® credential signifies that an adviser has demonstrated the knowledge and skills required to effectively execute critical functions related to onshore and offshore wealth management including wealth enhancement, wealth preservation and wealth transfer. (source: aafmindia.co.in)

 

Cost and Management Accounting

The Institute of Cost Accountants of India (ICAI) formerly known as ICWAI (Institute of Cost & Works Accountants of India) offers education and develops the profession of cost accountancy in the country. The Cost Management Accounting (CMA) course provides students with in-depth knowledge to manage business within the available resources. As a cost accountant, CMAs have to collect and analyse financial information from all functions of a company. (source: sarvgyan.com)

Diploma in Business Finance (DBF)

The Diploma in Business Finance (DBF) is offered by the Institute of Chartered Financial Analysts of India to impart a basic understanding of concepts, tools and techniques in finance, accounting, control, economics, law and allied areas. The course gives students

basic skills for understanding and providing solutions to day-to-day business problems through an understanding of finance, accounting and control. 

Equity

Equity, stocks, or shares represent units of ownership in a company. This is considered to be an aggressive asset class as investors are not assured of any minimum return or even of earning back their original investment. However, equity investments can multiply fast if the company invested in shows strong earnings and future growth potential.

Investors can invest in a company’s equity at the time of its listing, or Initial Public Offering (IPO), where purchase of equity is at the face value issued by the company. Once the IPO is closed, the shares start trading in the stock market, where the price of the shares can vary significantly from the issue price, depending on the earning potential and demand for a specific stock. Investors who are not familiar with the stock markets can also invest in equity via equity mutual funds.

Equity prices are affected by many different and interconnected factors like company fundamentals, industry factors and even macroeconomic and global factors, and can thus be very volatile. 

 

Estate Planning

Estate planning addresses the management and distribution of an individual’s assets in the event of their death or disability. Instruments like wills are used to ensure smooth and dispute-free transfer of assets to the next generation, including homes, investments, debt, and other valuable possessions like art and jewellery. Estate planners also use structures like Trusts to help an individual control the timing, reasons and method of distribution of their assets post their death. Trusts are also efficient in limiting gift, estate, and inheritance taxes. 

 

Exchage Traded Funds (ETFs)

ETFs are a form of mutual funds that are listed on the stock exchange and can be bought and sold in the stock market like shares. In India, ETFs invest in equity by tracking an index like Sensex or Nifty. We also have Gold ETFs that invest in gold as a commodity. 

ETFs offer a lower cost option of investing in equity mutual funds since they track an index and no active fund management is involved. Due to the same reasons, the returns of an ETF also track the index, and there are very few chances of exceptional returns, or alpha, being generated. However, recent studies have shown that in the long term, index tracking funds outperform actively managed funds due to lower costs and the inherent diversification in indices.

Risk-wise, equity ETFs are considered to be at par with equity mutual funds; however, since they usually track an index their level of risk does not significantly exceed that of the underlying index. 

 

Executive Program in Applied Finance

This is an executive programme offered by IIM Calcutta. The programme discusses finance and its linkage with other functions as applied to corporate and financial institutions. It provides cutting edge knowledge of finance as required in the corporate sector, banks, and financial institutions. The programme is considered relevant for professionals like investment analyst, consultants, and chartered/cost accountants. (source: iimcal.ac.in)

 

Family Counselling

Although it is a non-transactional service, some financial advisers offer counselling services to help families make important financial decisions together. 

 

Financial Planning

A financial plan studies an individual’s current financial position in terms of income, assets, and liabilities to estimate what their future cash flows and net worth can be. Financial planners use methods like cash flow planning, goal-based planning and asset allocation to plan the most optimal use of a person’s current resources. Using this approach, financial planners help people identify and focus on important financial goals, maximise savings and investments, minimise tax liabilities and provide for emergencies and unforeseen circumstances.

 

Financial Risk Manager

The Financial Risk Management Course is a qualification for risk management professionals. FRM designation is an international professional certification offered by the Global Association of Risk Professionals. Professionals learn about credit risk, liquidity risk, market risk, as well as a wide variety of functions related to risk management within investment banks, asset management firms, corporations and government agencies. (source: proschoolonline.com)

 

Financial Transitions

Financial transition planning is an emerging discipline, which addresses financial planning in situations where a person’s life has undergone a big change. For example, loss of a spouse, divorce, disability, the start of a new venture are all life transitions that can throw up a lot of questions about a person’s finances. Planners who specialise in financial transitions combine knowledge of financial planning with behavioural finance to guide people towards financial stability in such situations.

 

Financial Workshops

Financial workshops are organised by qualified financial planning professionals to help individuals learn the basics of financial planning and gain better control over their finances. These sessions also teach people how to recognise bias, fear, greed, etc., when making financial decisions, and how to adopt an objective, disciplined approach towards meeting their goals. 

Global Investments

Global investments are investments made in equity, mutual funds, ETFs, or bonds in foreign capital markets. The primary benefit of global investments is diversification of portfolios, so that an investor’s entire corpus is not dependent on one capital market. Investors also invest globally to get a chance to invest in their favourite companies.

The Reserve Bank of India’s (RBI’s) Liberalised Remittance Scheme allows Indian investors to invest up to USD 250,000 overseas per year. Investors can either open an account with an Indian broker who has a tie up with an international broker, or directly with an international broker. Indian investors can also choose to invest in Indian mutual funds or ETFs that invest in global equity.

Investing overseas involves higher costs, but can also offer opportunities for currency and tax arbitrage. 

 

Gold

One of the oldest ‘stores of value’ known to human beings, gold as an investment option has stayed relevant over centuries. Today investors can invest in gold physically; by holding stocks of gold mining or trading companies; in gold ETFs; by investing in gold as a commodity (gold futures); or simply as gold jewellery.

Primarily, investors prefer gold as it offers a hedge against inflation. Globally priced in US dollars, gold rises in value during times of high inflation, as well as when the US currency depreciates. It is also considered to be a safe haven investment, or as a safe medium to preserve and transfer wealth in times of turmoil. However, due to its illiquid nature, lack of dividends or earning capacity, and the volatility in its prices, investors are usually advised to limit their investment in the physical forms of gold. 

Insurance

Insurance policies are instruments of protection against certain occurrences in the life of the policy holder like death, disability, illness, liability or destruction of property. The insurance company contracts to pay the policy holder a pre-defined sum or percentage of loss in the case of such events, in return for a fixed premium paid by the policy holder. Broadly, insurance policies can be classified as life insurance, health insurance and general insurance.

Insurance policies are considered to be essential stepping stones to investments, as investors need to ensure that they have provided for unfortunate and unexpected events before risking their funds in the capital markets. However, insurance policies are less transparent than investment options like mutual funds, are fairly complex and technical in nature, and may have many hidden costs included in their structure. Investors thus need to be careful to choose a policy that will actually cover the risk they are worried about, with no hidden costs or exclusion clauses.

Masters in Business Administration (MBA)

Masters in Business Administration (MBA) is a 2-year post-graduate degree that equips students to successfully manage, lead, organize and adapt in a variety of business environments. The core courses in an MBA program cover various areas of business such as accounting, applied statistics, business communication, business ethics, business law, finance, managerial economics, management, entrepreneurship, marketing and operations, in a manner most relevant to management analysis and strategy. (source: Wikipedia | soilindia.net)

 

Master of Commerce (M.Com)

Master of Commerce or M.Com is a post graduate course ideal for those who wish to make a career in banking financial services and insurance (BFSI) as well as accounting and commerce sectors. The 2-year course delves deeper into the functioning of the economy, capital, revenue, trade, taxes, etc. as taught at the graduate level. (source: shiksha.com)

 

Master of Finance and Control

Master of Finance and Control is postgraduate financial services management programme, including a super-specialisation in accounting and finance. The programme aims to develop skills and abilities in decision-making, financial planning and control, while acclimating students with the regulatory and financial environment. (source: Collegedunia.com) 

 

Master of Management Studies (MMS)

Master of Management Studies (MMS) is a 2-year postgraduate degree that provides an insight into the core and specialized subjects in management. Specialisations are generally offered in areas of marketing, finance, operations, human resources as well as systems. The course study offers adequate knowledge and practical skills in applicants to plan and optimize resources for maximum productivity. (source: collegedunia.com)

 

Master of Science (M.Sc)

Master of Science (M.Sc) is a two-year duration postgraduate degree course offered by universities and colleges in various specialised science fields such as Physics, Biology, Chemistry, Mathematics, Botany, Biotechnology, Microbiology, Environmental Sciences, Food Sciences, Life Sciences, and so on. (source: shiksha.com)

 

Mortgages

Mortgages are loans taken to finance property purchases. Real estate is one of the traditionally preferred physical assets in India, and with the young working population earning better salaries than before, home loan mortgages have become a common part of almost every family’s portfolio.

Mortgages are offered by banks as well as non banking financial companies (NBFCs), and can be chosen on the basis of their: a) type of interest, that is, fixed rate, adjustable or floating rate, or combination; b) total costs that include processing fees, administrative fees, pre payment penalties and interest; c) down payment required (or owner’s contribution); and d) eligibility criteria. Although the rates of interest for mortgages are generally lower than personal loans or credit card debt, they are a long-term liability, and have significant impact on a family’s cash flows, capacity to save and future wealth. 

 

Mutual Funds

A mutual fund (MF) is a pool of money invested by many people, and professionally invested and managed by a fund manager. Especially beneficial for new or small investors, MFs allow them to enter the capital markets with fairly small amounts – sometimes as low as Rs. 500. Investors also benefit from the diversification of the funds into different asset classes, their professional management, and the option to choose from a large number of different fund categories like equity (large cap, multi cap), balanced, or debt (liquid, ultra short term, long term).

However, MFs carry the same degree of risk as their underlying assets, and are considered expensive products due to the fairly high fee that is deducted from investors’ money. This is known as the Total Expense Ratio (TER) of a fund, and in India, this can be anywhere between 0 and 2.25%. Investors can choose to invest in MFs via a Regular Plan (through a distributor) or the less expensive Direct Plan (either directly or through a fee-based adviser). 

National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a government-sponsored market-linked pension product open to all Indian citizens between the ages of 18 and 60. The scheme allows the investors to choose from 2 types of accounts: Tier I, a mandatory account with strict limits on withdrawal of corpus until retirement; and Tier II, which is voluntary.

The government has selected 8 professional fund managers for the NPS, and at the time of opening the account, investors can choose the type of account, fund manager, and investment options based on their preference. On retirement, investors can withdraw up to 60% of their corpus as lump sum, and need to buy an annuity product with the rest.

Being a pension product, the NPS is a largely conservative product; but since it is market-linked, investors are exposed to risk based on their chosen investment option. In terms of tax treatment, tax deduction of up to Rs. 1.5 lakh can be claimed under Sec 80C for investor’s own and employer contribution. At withdrawal, up to 60% of the corpus can be withdrawn tax free.

 

NISM Certificate

The NISM Certification seeks to create a common minimum knowledge benchmark for all associated persons registered as an investment adviser under SEBI (Investment Advisers) Regulations, 2013 and offering investment advisory services.

An associated person shall be required to pass both the levels (i.e., NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination and NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination) to fulfill the requirements under Regulation 7(2) of the SEBI (Investment Advisers) Regulations, 2013. (source: NISM) 

 

Non-Transactional Financial Advice

Fee-based investment advisers often offer financial reviews or guidance to address specific queries or concerns that an investor may have. These services may or may not lead to a transaction.

 

Philanthropy/Charity

Philanthropy advisers help clients plan their charitable activities to make them sustainable and effective. Management of funds and assets is at the heart of any charitable exercise, and tax efficiency is often one of the starting points for discussions on philanthropy. Financial advisers therefore offer philanthropy or charity planning as a specialised service to their clients. Their services include helping clients identify their motivation for giving; their goals; how they would like to bring about change (for example, by giving a grant, supporting an NGO, or sponsoring research); and the outcomes they would like to see. The adviser will also help clients execute the plan through tools like bequests, grants, charitable foundations, or trusts. 

 

Portfolio/Investment Management

Collectively, an individual’s investments across asset classes like equity, fixed income, real estate, etc., form a portfolio. Portfolio management is an ongoing process of deciding the best investments for each person, depending on their goals, risk profile and tenure of investment. Doing this involves a trade-off or balancing act, wherein the manager uses asset allocation and product selection to maximise returns, while balancing risk and term of investment.

As markets change over time, professional portfolio managers use techniques like portfolio review and portfolio rebalancing to ensure that the portfolio continues to perform as per strategy, and remains on course to help the investors meet their goals. 

 

Portfolio Management Service (PMS)

PMS is an investment product wherein an investor’s funds are managed by a professional portfolio manager. Targeted mostly at high net worth individuals, a PMS manager aims to maximise returns using the levers of asset allocation, tenure and overall risk exposure of the portfolio based on the client’s requirements.

PMS products are generally of two kinds: Discretionary, wherein the entire control of the portfolio is with the manager, and client approval is not required for trades; and Non-Discretionary, where clients have to approve each transaction. PMS products are one of the more expensive products in the market, as they involve a management fee, as well as a performance fee, which is a share of the profits generated. PMS also has a high minimum investment threshold, with some of the best PMS plans in India requiring at least Rs. 25 lakhs of investment.

 

Post Graduate Diploma in Business Management (PGDBM)

Post Graduate Diploma in Business Management (PGDBM) is a full-time post-graduate diploma course of 2 years. This course provides advanced skills, knowledge, and competencies in the functional areas of management, and focuses on features and importance of management, which is the most relevant element in business success. (source: collegeduniya.com)

 

Post Graduate Diploma in Financial Management (PGDFM)

The Post Graduate Diploma in Financial Management (PGDFM) is a 1-year post graduate programme, often pursued part-time by professionals. The course aims to help professionals develop a strong foundation in Financial Analysis and Management, and gain a good understanding of financial markets and products and related terminology. (source: BITS Pilani)

 

Private Equity (PE)

PE involves investing in companies that are not listed in the stock markets. While Venture Capital is also a form of private equity, as a broad category PE includes investments in bigger, more established businesses that are looking to execute a growth strategy, transform their business model, enter newer markets, and so on.

Investors can enter into PE investments directly via a few angel investment platforms or aggregators, through PE-focused Portfolio Management Services (PMS) products, or, the most common route, Alternative Investment Funds (AIFs) that invest in private equity.

By definition, PE funds are a high reward – high risk venture with very long term horizons, as bets made in companies may take years to bear fruit, if any. They also offer no liquidity as shares of privately held companies cannot be sold in the stock market. PE products are targeted towards high or ultra high net worth individuals, and in India, the minimum ticket size for PE can range from Rs. 25 lakhs to several crores. 

Real Estate

Real estate investments include investments in land, buildings, homes or commercial properties. Real estate is a traditional, physical asset class, and holds significant emotional value for most Indian investors.

While the highest number of real estate investments are in the form of homes, or owner-occupied properties, second homes, commercial properties and farm lands are also preferred investments for their capacity to appreciate in value and generate rent income. Investors can also invest in units of Real Estate Investment Trusts (REITs), which are pooled real estate holdings. Rental income from REIT assets is passed to unit holders as distributions.

While real estate investments can offer capital appreciation and steady rental income, they are expensive and can involve a big opportunity cost. Experts advise investors to consider whether they would can earn more by investing the same amount into the capital markets. Also, real estate is an illiquid investment and its value can be heavily influenced by local factors like infrastructure, connectivity, crime rate and employment rate.

 

Registered Life Planner (RLP®)

Registered Life Planners (RLP®) are graduates of the Kinder Institute’s (USA) RLP® programme, which is an internationally accepted and accredited programme. The programme involves a Life Planning training, a Money Maturity training, as well as a 6-month Mentorship. The Life Planning approach focuses on the human side of financial planning. Advisers are trained to discover a client’s deepest and most profound goals through a mindfulness-based process of structured and non-judgmental inquiry. (source: kinderinstitute.com) 

 

 

Retirement Planning

Retirement planning involves estimating and providing for an individual’s financial needs for life after they stop working. Professional advisers gather information on time to retirement, current cash flows, investments, and net worth, as well as expected expenses post retirement to arrive at the size of the required retirement pot. This allows them to then design a portfolio that can meet this goal while ensuring adequate preservation and growth of capital. With growing life expectancy, retirement planning has become a key goal for most investors. It is also a goal that allows for maximum compounding if a person starts planning for it early enough. 

Tax Planning

Individuals are subject to many types of taxes at the point of earning, investing, redeeming, and even transferring money. Taxes are thus considered to be one of the biggest costs of investing, and optimising tax can make a sizeable difference to wealth generation over the long term. 

Tax planning involves studying the tax implication of a person’s financial plan and recommending actions that are most tax efficient. Tax planners study allowances made across different financial products for deductions, duration of holding, or threshold amounts, to plan investments and withdrawals in a manner that saves maximum tax.

 

Trusts

Trusts are legal entities that are used to transfer an individual’s assets to a beneficiary. They offer the individual (trustor) complete control over when, how, and for what purpose, their assets will be distributed, even after their death. Trusts are managed by a third party (trustee) who is appointed to ensure that the trustor’s assets are preserved and distributed as per the legal trust deed. Trusts can be used to execute transfers for inheritance, philanthropy, or both, and can also help trustors as well as beneficiaries reduce or avoid estate, inheritance or gift taxes.