Financial glossary
Short definitions for terms you will see in our calculators and guides. Open any term for examples, related tools and links.
Annuity — Income stream purchase
A product that converts a lump sum into periodic payments. NPS and retirement plans may require or offer annuity purchase for a portion of corpus—rules vary.
Asset allocation — Mix of asset classes
How a portfolio is split across equity, debt, cash and other assets based on goals, timeline and risk capacity.
CAGR — Compound Annual Growth Rate
A smoothed annualised growth rate between two values over time. Best for single start/end points—not irregular cash flows (use XIRR instead).
Compounding — Earning on reinvested returns
When returns themselves earn returns. Frequency (monthly/quarterly/annual) and contribution timing change outcomes.
Corpus — Total invested pot
The pool of money accumulated for a goal (retirement, education, etc.). Target corpus depends on expenses and withdrawal assumptions.
Diversification — Spreading risk
Holding exposures that do not all move together, to reduce the impact of any single holding or sector. Does not remove market-wide risk.
Emergency fund — Liquid cash buffer
Money set aside for unexpected essential expenses or income shocks, kept accessible and relatively safe rather than maximising return.
EMI — Equated Monthly Instalment
A fixed monthly payment on a reducing-balance loan covering interest and principal. Early EMIs are typically interest-heavy.
EPF — Employee Provident Fund
Retirement savings contribution framework for eligible employees, administered with notified rates and withdrawal rules.
Expense ratio — Fund operating cost
Annual fund management and operating costs charged within a mutual fund’s NAV. Higher expenses reduce investor returns, all else equal.
FD — Fixed Deposit
A bank (or similar) deposit of a lump sum for a fixed tenure at a quoted rate. Interest taxation depends on current rules and your slab.
FIRE — Financial Independence, Retire Early
A planning approach aiming for a portfolio that can fund living costs without traditional employment income.
Flat rate — Interest quoted on original principal
A quoting method where interest may be calculated on the original loan amount for the full tenure—often looking lower than the equivalent reducing rate. Always compare effective cost.
HRA — House Rent Allowance
A salary component that may qualify for tax exemption under rules that consider rent paid, salary and city classification. Exact computation depends on current law and your documents.
Inflation — Rising prices over time
Erodes purchasing power. Long-term goals should compare corpus in today’s rupees using an inflation assumption.
LTCG — Long-Term Capital Gains
Gains on assets held beyond a specified holding period defined in tax law. Rates and holding periods vary by asset class and can change—verify officially.
NAV — Net Asset Value
Per-unit value of a mutual fund scheme after assets and liabilities. SIP instalments buy units based on NAV on the allotment day.
NPS — National Pension System
A contribution-based pension system with market-linked returns and regulated withdrawal/annuity features (see PFRDA).
PPF — Public Provident Fund
A long-term government-backed savings scheme with notified interest rates and contribution rules. Confirm current terms officially.
Prepayment — Extra loan repayment
Paying more than the scheduled EMI to reduce principal early. May shorten tenure or lower EMI depending on lender options and fees.
RD — Recurring Deposit
A deposit product where you contribute fixed amounts on a schedule for a tenure, earning interest as per the quote.
Reducing balance — Interest on outstanding principal
Interest is charged on the remaining loan principal. As you repay, interest cost falls. Contrast with flat-rate quotes.
Section 80C — Deduction umbrella (illustrative)
A commonly discussed deduction section for eligible investments/expenses subject to limits and regime choice. Eligibility and limits change—verify officially.
SIP — Systematic Investment Plan
A schedule of fixed investments (often monthly) into a mutual fund. Each instalment buys units at the prevailing NAV. Returns are not guaranteed.
STCG — Short-Term Capital Gains
Gains on assets sold before the long-term holding period. Treatment depends on asset type and current tax rules.
Sum assured — Stated life cover amount
The amount an insurer agrees to pay on a covered event as defined in the policy. Riders and conditions can affect what is actually paid.
SWP — Systematic Withdrawal Plan
A schedule of regular withdrawals from a mutual fund investment. Units are redeemed to fund each payout; remaining units stay invested.
SWR — Safe Withdrawal Rate
An assumed percentage of corpus withdrawn annually in retirement planning. Common illustrations use ~3–4%; not a guarantee.
TDS — Tax Deducted at Source
Tax withheld by a payer (employer, bank, etc.) and deposited with the government. It is not always your final tax liability.
Term insurance — Pure life cover
Life insurance that pays a sum assured on death during the policy term, typically without a large savings component. Confirm exclusions and claim rules in the policy document.
XIRR — Extended Internal Rate of Return
Annualised return that accounts for multiple cash flows on different dates. Useful for SIP + redemption histories.
Glossary by Aaru Wealth. Verify statutory details on official sources.