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Reference
The plain-English money glossary
The words finance uses to keep you out, put back in plain English. No sales pitch attached. Each term links to the calculator or guide where it actually matters.
Investing and returns
SIP. A Systematic Investment Plan. A fixed amount put into a mutual fund at a set interval, usually monthly. It is a habit, not a product; you can run a SIP into almost any fund. See the SIP calculator.
Lump sum. Investing a single amount all at once, instead of spreading it out month by month. See the lumpsum calculator.
Compounding. Earning a return on your past returns, not just on what you first put in. It starts slow and turns steep late, which is why time matters more than the amount.
CAGR. Compound Annual Growth Rate. The single yearly rate that would carry your money from its start value to its end value as if it grew smoothly. Real investments do not grow smoothly, so CAGR is a summary, not a description. See the CAGR calculator.
XIRR. The return when money goes in and out at uneven times, as with a SIP. It weights each cash flow by how long it stayed invested. Use it instead of CAGR when the timing is irregular.
Absolute return. The total gain from start to finish, ignoring how many years it took. It only means something with the time period stated next to it.
Index. A basket that stands in for a market, like the Nifty 50 or the Sensex. An index fund simply holds that basket, so its return tracks the market at a very low cost.
Index return vs fund return. The index is the market's own return. A fund that follows it hands you the index return minus its expense ratio and a small tracking gap, so your take is a little below the headline index number.
Expense ratio. The yearly fee a mutual fund charges, taken out of returns before you ever see them. An index fund may charge around 0.2%, an active fund around 1% or more. It looks tiny and compounds into a lot.
Equity. Ownership in companies, held directly as shares or through an equity mutual fund. Higher long-run return, bigger swings along the way.
Debt fund. A mutual fund that lends rather than owns, holding bonds and similar instruments. Steadier than equity, with a lower long-run return.
Step-up SIP. A SIP you raise a little each year, usually by a fixed percentage, so it grows with your income. A flat SIP shrinks in real terms every year. See the step-up SIP calculator.
Corpus. The total pot you end up with, or the pot you are drawing from. Just a plain word for the sum of money in play.
Nominal return vs real return. Nominal is the raw percentage. Real is what is left after inflation, and it is the one that actually buys things. A 12% nominal return with 6% inflation is only about 6% real. See the inflation calculator.
Rupee cost averaging. Because a SIP invests a fixed amount every month, it buys more units when prices are low and fewer when they are high, so your average cost evens out. It is a side effect of investing steadily, not a strategy in itself.
Tax
Capital gains. The profit when you sell an investment for more than you paid. It is taxable, and how much depends on the asset and how long you held it.
LTCG and STCG. Long-Term and Short-Term Capital Gains. The holding period decides which one applies, and long-term is usually taxed more gently. Rates and holding periods change, so check the current rule before you sell.
Section 80C. The part of the income-tax law that lets you deduct certain investments and payments, up to a yearly limit, from taxable income in the old regime. PPF, EPF, ELSS and life-insurance premium sit under it.
TDS. Tax Deducted at Source. Tax the payer takes out before paying you, as a bank does on FD interest past a threshold. It is an advance, adjusted against your final tax bill.
Insurance
Term insurance. Pure life cover. It pays your family if you die during the term and pays nothing if you outlive it, which is exactly why it is cheap. See the term cover calculator.
Sum assured. The amount an insurance policy pays out. For term cover, the amount your family receives.
Endowment plan. A policy that mixes insurance with investment. It usually does neither job well: the cover is small and the true return often lands around 4 to 6%. See the endowment calculator.
Rider. An add-on bolted to an insurance policy, like accident or critical-illness cover, for an extra premium.
Super top-up. Health cover that sits above a deductible and pays only for bills beyond it, which makes a large cover cheap. See the super top-up guide.
Deductible. The amount you agree to pay yourself before insurance starts paying. A higher deductible means a lower premium.
Room rent limit. A cap in a health policy on the room tariff it will cover. It does more damage than it looks, because going above it can scale down your whole bill in proportion.
IRR. Internal Rate of Return. The true annual return of a stream of payments and payouts. It is how you judge what an endowment or money-back plan really earns once every cash flow is counted.
Retirement and savings
EPF. Employees' Provident Fund. A retirement fund built from a slice of your salary and a matching employer share, at a rate the government sets each year. See the EPF calculator.
EPS. Employees' Pension Scheme. Part of the employer's contribution goes here to fund a small lifelong pension, rather than into your EPF balance.
PPF. Public Provident Fund. A government savings account with a 15-year lock-in, tax-free interest and a yearly deposit limit. See the PPF calculator.
NPS. National Pension System. A retirement account that invests in market-linked funds; at exit, a part of the corpus must buy an annuity. See the NPS calculator.
Annuity. A product you buy with a lump sum that then pays you a fixed income for life. It trades your capital for certainty.
SWP. Systematic Withdrawal Plan. The reverse of a SIP: a fixed amount drawn from your corpus at a set interval, while the rest stays invested. See the SWP calculator.
Safe withdrawal rate. The share of your corpus you can draw each year without running out. In India, 3% a year is a sturdier starting point than the old 4% rule. See the 3% rule guide.
Financial independence. The point where your investments can cover your living costs, so work becomes a choice rather than a must. Often shortened to FI, or FIRE when early retirement is the aim.
Emergency fund. Money kept safe and instant for a bad month, in a savings account or a liquid fund, never in equity. Its job is to be there, not to grow. See the emergency fund calculator.
Loans
EMI. Equated Monthly Instalment. The fixed monthly payment on a loan, part interest and part principal, with the interest share largest at the start. See the EMI calculator.
Principal. The amount you borrowed, before interest. Every EMI chips a little more off it.
Amortization. The schedule by which a loan is paid down over time, showing how much of each EMI goes to interest and how much to principal.
Prepayment. Paying extra towards a loan's principal ahead of schedule. Done early, it removes years of interest. See the prepayment calculator.
Floating vs fixed rate. A floating rate moves with the market; a fixed rate stays put. Home loans are usually floating, and floating loans usually allow free prepayment.
Banking
Fixed Deposit. An FD. Money parked with a bank for a set term at a set rate, with interest usually compounded quarterly and taxed at your slab. See the FD calculator.
Recurring Deposit. An RD. Like an FD, but funded by a fixed monthly deposit, so it builds the saving habit. See the RD calculator.
Compounding frequency. How often interest is added back to the balance, monthly, quarterly or yearly. More frequent compounding gives a slightly higher effective return.