The investment sector has hundreds of specific investment terms that are helpful for every beginner investor. Also, discover key investment terminology that outlines new concepts and product transformations.
Studying these investment terms will give detailed information to newcomers in this field and give them a decent start.
These financial ideas and investment terminology will give you an outlook that will assist you in reaching your dream business goals.
Scroll down to witness the list of investment terminology below and get a complete understanding of what you’re looking for.
Table of Contents
Key Investment Terminology Explained: A to Z
Financial Glossary: Investment Terminology for A
Annual Return
This investment terminology Annual return refers to ROI or the return on an investment produced in a single year. Also, it’s calculated as the investment’s starting amount percentage.
Asset
An asset refers to the things you own that have economic/ monetary value.
Asset-Backed Securities
This investment terminology is a designated pool of primary assets, including credit cards, loans, leases, and royalties, backs an asset-based security (ABS), assuring or guaranteeing its income payments and value.
Asset Classes
An asset class refers to grouping several investments with almost identical characteristics and displaying similar return patterns in the marketplace.
Alpha
The total return you expect from an investment you make from its basic value.
Active Trading
Active trading refers to buying and selling securities on short-term price changes to earn a quick profit.
Annual Report
A yearly report of the company to shareholders, in which they record their activities and finances in the preceding financial year.
Annualized
The process of annualization converts figures covering a short-term period (less than a year) into a 12-month equivalent.
Annuity
Annuity is a financial tool that helps investors deliver frequent payments for a specified period.
Appreciation
When a financial asset’s value increases, it’s called appreciation.
Asset Allocation
Asset allocation refers to dividing investments among various assets, including bonds, cash, and stocks.
Average Maturity
Average Maturity is the weighted average or average calculation of all the current or stated maturities of the debt securities in the portfolio.
Financial Glossary: Investment Terminology for B
Balanced Fund
This investment terminology Balanced fund or hybrid fund refers to a group of a stock (equity) component and a bond (debt) element in a certain ratio in one portfolio.
Bear Market
A bear market refers to a prolonged period during which stock prices usually fall by at least 20% from their actual price or their highest one.
Benchmark
Benchmark is a standard, which is an uncontrolled index, generally used for comparison purposes in evaluating mutual fund or portfolio performance.
Best-in-Class
Best-in-class investment means selecting companies that get control over a specified ranking hurdle and set up using ESG criteria within a peer group or each sector.
Beta
Beta (β) is a volatility measurement or systematic risk of a portfolio. Furthermore, it calculates return volatility associated with a holistic market, where 1 is neutral, less than 1 is less volatile, and above 1 is more volatile.
Blue Chip
A relatively low-risk and high-level investment, it usually refers to large, deep-rooted companies that have performed exceedingly well for a long time.
Board of Trustees
A board of trustees is a governing board appointed or elected to manage an institution’s policies.
Bond
Corporations, municipalities, and governments issue bonds when they wish to raise money. Also, the issuer ensures a refund of the entire loan amount on a particular date and agrees to pay the investor a defined return rate for the money used at particular time intervals.
Bond Fund
A bond fund, also known as a debt fund, is a fund that invests in bonds or any other debt securities.
Breakpoint
A breakpoint is the dollar investment in a mutual fund when an investor qualifies for a reduced sales fee.
Bull Market
A bull market is a market where prices rise rapidly.
Financial Glossary: Investment Terminology for C
Capital
It is usually the cash or liquid assets that are obtained for expenditures.
Capital Gain
Capital gain is the increase in the value of a capital asset when sold. In other words, capital gain occurs when you sell your asset for a higher price than what you originally paid for it.
Cash Equivalent
Cash equivalent is an investment that can be turned into cash with minimal risk, like a treasury bill.
Capital Loss
A capital loss is the loss incurred when an asset is sold for less than its original purchase price.
Capitalization
Market capitalization is calculated by multiplying the number of outstanding shares by the price per share. As a matter of fact, this process essentially converts the company’s pricing into the value of its assets, reflecting devaluation over time.
Common Stock
Common stock refers to a security that depicts your ownership in a corporation and the stock type in which the majority of people invest.
Commissions
Commission is the fee you pay to your financial advisor or investment dealer that handles your purchases or provides investment advice.
Commodities
Commodities are basic goods that can be exchanged in your business with a similar product, such as oil, gold, grains, and natural gas. They are sensitive to economic transformations and highly speculative.
Certificate of Deposit (CD)
A CD is a savings account offered by credit unions and banks. Usually, you agree to retain your money in a CD for a fixed amount for a specified time, such as six months, one year, or five years.
Consumer Price Index (CPI)
A CPI or consumer price index refers to an index that calculates the change in cost that consumers need to pay for a basket of products and services.
Financial Glossary: Investment Terminology for D
Debenture
This investment terminology debenture is a bond type or long-term debt instrument of your business that is not secured by collateral. It’s a funding alternative for businesses with robust finances that wish to avoid issuing shares and diminishing their equity.
Debt
Debt is money borrowed from moneylenders. When the borrower needs to pay interest on the money they borrowed, they must repay the amount by a particular date.
Derivative
A derivative is a financial contract between two parties whose value depends on the benchmark, group of assets, or underlying assets. It’s a set where two parties can trade on OTC (over-the-counter) or an exchange.
Defensive Assets
A defensive asset is an asset (bonds, gifts, cash-based investment) bought to increase value and income over time and offer fixed returns with low volatility for the long term.
Dividend
A section of a company’s profit that it decides to pay its shareholders.
Dividend Yield
The dividend field is a financial ratio that depicts what amount your company earns in dividends annually for every dollar you invest in mutual funds, exchange-traded funds, or stock. It’s the ratio of the amount that a company pays its shareholders for owning shares of its stock divided by its current stock.
Deferred Sales Charge
A deferred sales charge is a back-end load charge that investors must pay if they sell out a mutual fund’s shares within a defined period (generally in the first 6 or 7 years).
Dividend Tax Credit
A dividend tax credit refers to a tax provision that gives access to people to apply on their divided earnings to reduce their yearly tax liability. It’s calculated as an accumulated dividend earning percentage.
Dollar Cost Averaging
Dollar-cost averaging involves investing the same amount of money at frequent intervals over time, regardless of the purchase price.
Financial Glossary: Investment Terminology for E
Equities
An equity is a share issued by a company that serves as ownership in it.
Earnings Per Share (EPS)
A company’s net income is divided by the number of outstanding stock shares.
Equity Fund
An equity fund is a mutual fund where money is invested in the fund via SIP or in common or/preferred stock. You further invest this fund in different equity stocks on your behalf.
Ex-Dividend
The interval between the announcement and the next dividend payment for a stock is called ex-dividend.
Ex-Dividend Date
The ex-dividend date is when the stock begins trading without the succeeding dividend value. Usually, the dividend is paid to shareholders three weeks before the date on which stocks go ex-dividend.
Exchange Privilege
Exchange privilege is the potential to transfer money from one MF to another within the same family of funds.
Expense Ratio
The expense ratio is the annual maintenance charge assessed by mutual funds to pay for its expenses.
Earnest Money
Earnest money is the deposit buyers make on a home they wish to buy or money given to sellers by buyers to depict the good faith of buyers. When the deal fails to happen, the deposit is usually secured.
Exchange Rate
An exchange rate is the rate at which one currency is exchanged for another.
Exchange-traded fund (ETF)
An ETF is an investment fund comprising assets, including bonds, commodities, derivatives, currency, or shares. An exchange-traded fund is traded in the form of a stock.
Financial Glossary: Investment Terminology for F
Fund
Fund refers to a pool of money or pooled capital of investors that allows a fund manager to make financial or investment decisions, such as buying securities on their behalf.
Face Value
Face value is the nominal value of an asset. It’s the money that a lender will get when a debenture or bond is repaid, excluding interest.
Fair Market Value (FMV)
Fair market value is the cost set by an open market at which an asset could be bought or sold.
First Home Savings Account (FHSA)
The First Home Savings Account is a registered account or plan that helps you provide tax-free savings for your first home purchase.
Fixed Income Investments
Fixed-income investments, such as corporate bonds, debentures, and government bonds, help you pay dividend income or preset interest.
Fixed Income Securities
Fixed-income securities refer to debt instruments that pay a fixed interest amount or dividend income, including corporate bonds, debentures, governments, and preferred shares, which are coupon payments to investors.
Front-End Load
A front-end load refers to a commission or sales charge an investor must pay upfront during an asset purchase. It’s also a fee that investors pay when MF is first bought.
Financial Materiality
Financial materiality is an event or information that possibly impacts a company’s operating performance or financial condition and must be assessed in investment decision-making.
Fixed Income Fund
A fixed-income fund is a portfolio or fund in which bonds are purchased mainly as investments. There is no guarantee of repayment or fixed maturity.
Fixed Income Security
Fixed income security is a security that pays a regular fixed interest rate.
Financial Glossary: Investment Terminology for G
Guaranteed Investment Certificate (GIC)
This investment terminology are investments sold by financial institutions that pay a fixed interest rate for a defined period (generally 1-5 years).
Financial Glossary: Investment Terminology for I
Impact Investing
Impact investing is a sustainable investment strategy (cost-effective education, housing, healthcare) that seeks to produce measurable financial returns while establishing a positive environmental or social impact.
Index
An index refers to a basket of derivatives, a group of securities, or any other financial instrument that indicates and calculates asset class performance, investment strategy, specific market, or market sector.
Individual Retirement Account (IRA)
An IRA is an individual retirement account or a tax-deferred account that gives you the freedom to save money in a tax-advantageous way for your retirement.
Inflation Rate
Inflation is a rise in the prices of products and services, which represents how speedily prices increase over time and how quickly investments lose their original value.
Interest Rate
An interest rate refers to a fixed amount of money issuers agree to pay the shareholders. Often, it’s known as the percentage of a bond’s face value.
Interest-Rate Risk
An interest rate is a possible reduction in the value of assets or securities, including bonds, that results from a hike in interest rates.
Investment Advisor
An investment advisor is a firm or individual who specializes in advising clients on the buying and selling of securities in exchange for a fee.
Investment Company
An investment company is a corporation, partnership, or trust that invests collective shareholder dollars (or money) in securities suitable to the company’s goal.
Investment Grade Bonds
An investment-grade bond is a bond that’s usually meant to be appropriate for prudent investors to purchase.
Investment Objective
Out of four common strategies that encompass income, growth, growth and income, income and tax-free income or trading, the investment objective of an individual makes simple financial investment ideas to help achieve the individual’s financial goals.
Financial Glossary: Investment Terminology for J
Junk Bond
A junk bond is a lower-rated, generally high-yielding bond with a credit rating of BB (which is a below or lower investment grade junk).
Financial Glossary: Investment Terminology for K
Know Your Client
KYC is a standard that verifies individuals’ identities, understands and analyzes their financial profile, and gauges (determines) their investment knowledge.
Financial Glossary: Investment Terminology for L
Locked-in Retirement Account (LIRA)
LIRA is an account or a special registered (RRSP) retirement savings plan for locked-in pension funds. In LIRA, the account is RRSP, but holders don’t have access to funds until retirement.
Liquid Asset
A liquid asset (cash, money, marketable securities, and market instruments) is one that can be easily converted into cash quickly with no or minimal loss in value.
Leverage
Leverage is an investment technique in which you borrow money to make an investment, maximize ROI, raise funds, or obtain additional assets for the company.
Lipper Ratings
Lipper ratings refer to a system investment professionals use to rate mutual funds’ performance. It gives investors a viewpoint as to how funds performed in previous years and how they will possibly perform in upcoming years.
Large-Cap Stocks
Large-cap stocks, or big caps, are the shares or stocks of companies with a market capitalization of over $10 billion.
Letter of Intent
A letter of intent (LOI) expresses interest in buying partial ownership in real estate or a company or highlights the T&C of a proposed investment by a group of investors or individuals. The LOI comprises information such as funds usage, offered amount, your startup’s evaluation, and investment type.
Loads (back-end, front-end, and no-load)
A load is a commission or sales charge to an investor when buying or retrieving shares in mutual funds.
- Back-end Loads – Back-end load is evaluated at redemption time.
- Front-end Loads – A front-end load is made at the purchase time.
- No-load – No loads are funds that have zero sales charges.
Long-Term Investment Strategy
A long-term investment strategy is a plan that observes routine changes in bond and stock markets and responds accordingly to basic changes in the economy or financial markets.
Financial Glossary: Investment Terminology for M
Margin Account
A margin account is a trading or brokerage account that allows you to borrow money to purchase securities.
Management Expense Ratio (MER)
The management expense ratio is the sum of operating expenses and management fees represented as the fund’s value percentage.
Management Fee
The management fee is paid to professionals handling investments on the client’s behalf.
Material Change
A material change is a change where a knowledgeable and cautious investor wishes to know about detailed information before making financial investment decisions.
Market Price
The market price is a term in which buyers and sellers agree to trade the security and the amount of money for which an asset can be sold.
Maturity Date
The maturity date is when debentures, bonds, term deposits, GIC, or other debt instruments are due to be paid back to the investor.
Mutual Fund
A mutual fund is a well-organized investment portfolio that allows investors to buy a varied portfolio of bonds, stocks, short-term debt, and other securities.
Mutual Fund Dealer
Mutual fund dealers help investors buy, sell, and manage the units or shares of mutual fund investments.
Mortgage-Backed Security (MBS)
A mortgage-backed security is a debt security backed by a group of mortgages or even a mortgage. It’s an asset-backed security traded on the secondary market, allowing investors to profit from the mortgage business without needing to buy or sell home loans directly.
Market Correction
A market correction in the investment field is a transformation in the stock price from its current peak state.
Financial Glossary: Investment Terminology for N
Nasdaq is a computerized system or a global electronic marketplace that offers brokers and dealers the opportunity to buy and sell securities with price quotations.
Net Asset Value (NAV)
Net asset value is the net value of an investment fund’s assets, which is less than the fund’s liabilities and divided by the number of shares/stocks outstanding.
New Client Account Form
When you open a securities trading account, you must complete a new client account form that includes basic information plus the investor’s investment preferences.
No-Load Fund
A no-load fund is a mutual fund in which shares are sold and bought without any sales or commission charge.
Number of Holdings
Number of holdings refers to the sum of individual securities in a portfolio or fund.
Net Asset Value Per Unit (NAVPU)
A fund’s net asset is divided by the number of units issued. It is also called net asset value per share (NAVPS).
Net Profit Margin
A ratio showing a company’s profitability by factoring in expenses and taxes to determine how efficiently the company is managed.
NFS Cheque (non-sufficient funds)
When an account balance is insufficient to cover a cheque’s amount.
Nominal Interest Rate
The interest rate quoted on an investment or loan, typically used for comparison purposes, does not factor in inflationary effects. Typically used for comparison purposes.
Nominal Return
A rate of return on an investment, not adjusted for taxes and inflation. For a bond, this would equal the coupon rate.
Financial Glossary: Investment Terminology for O
Option
The option is your right to sell or buy underlying assets at a defined price for a fixed time.
Offer Document
An offer document is a written document issued by a firm for its shareholders of another firm that elaborates on why the firm is interested in buying shares in its company and further explains minute details linked to its offers.
Open-End Fund
An open-end fund implies a mutual fund scheme that is open to buy or sell whenever you want without any time constraints.
Financial Glossary: Investment Terminology for P
Ponzi / Pyramids
When no real investment and fraud occurs, it’s called pyramids. In this, money is taken or used from new investors to pay the existing ones to make it look like money is being given or made.
Portfolio
A portfolio is a collection of bonds, stocks, shares, or other investments you own.
Portfolio Manager
The portfolio manager is a person who may do non-compulsory trades for high-net-worth individuals and institutional investors. It’s also an individual or firm that handles a group of securities and mutual funds.
Preferred Share
Preferred shares, commonly known as preferred stocks, are shares of a company’s stock with dividends that are paid to shareholders before issuing common stock dividends.
Principal
The original investing of money or lending earning interest or other sources of income.
Pump and Dump
Pump and dump is an illicit scheme to increase the price of stocks or securities based on false statements.
Purchasing Managers Index (PMI)
The PMI is an economic indicator that includes inventory levels, employment, new orders, supplier deliveries, and production. It is further comprised of monthly surveys and reports from the manufacturing sector.
Price-to-Earnings Ratio (P/E)
Price to Earnings Ratio, also known as Price to Earnings Multiple, is the ratio of a stock’s share price to its earnings per share (EPS).
Property and Casualty Insurers:
Property/casualty insurers invest in liquid securities, safe, and primarily bonds. These insurers offer protection against property losses to businesses, cars, and homes.
Price-to-Book (P/B) Ratio
A price-to-book ratio is called the current stock price of a company divided by its net worth or book value per share. It’s the company’s market valuation when compared to its book value.
Financial Glossary: Investment Terminology for Q
Quality Distribution
The portfolio breakdowns assets on investments’ quality rating.
Financial Glossary: Investment Terminology for R
R2
R-squared or R2 measures how closely the asset performance can be accredited to the selected benchmark index performance.
Ratings
Ratings are assessments of bonds or stocks done by an analyst or rating agency after studying them carefully.
Required Rate of Return (RR)
It is the minimal profit or return an investor receives when taking on the investment risk in stocks or any other type of securities.
Risk Premium (RP)
RP refers to the investment return that an asset is anticipated to yield over the risk-free rate of return. An asset’s risk premium is a form of compensation for investors.
Redemption
Redemption is the repayment of fixed-income securities or bonds at or before the maturity date of assets.
Reinvestment Option
The reinvestment option is the reinvestment of income distributions made from an investment instead of getting cash.
Relative Risk and Potential Return
Relative risk and potential return is the amount of potential return you get from an investment associated with the relative risk you are ready to accept.
Registered Retirement Income Fund (RRIF)
RRIF is an account that lets you generate a stable and secure source of income during your retirement.
Registered Retirement Savings Plan (RRSP)
A RRSP is a retirement plan that allows you to save tax-deferred for your retirement. Income and growth accumulate tax-free in this plan in your account until your withdrawal.
Risk Tolerance
Risk tolerance is the loss an investor is prepared to bear while making a financial investment decision.
Financial Glossary: Investment Terminology for S
Sales Charge
The sales charge is for a few fund share sales that brokers or other sales experts generally sell.
Sector
A sector is a collection of similar securities in a particular industry, like equities.
Sector Breakdown
Sector breakdown is the breakdown of securities by industry groups in a portfolio.
Securities
Security is another name for a wide range of investments, such as bonds, debentures, investment contracts, limited partnership interests, oil or gas interests, or stocks.
Short Selling
Short selling occurs when investors borrow securities and sell them in the open market, with the plan to purchase them back for less money later.
Share Class
A share class refers to the designation applied to a particular security type, such as common stock or a mutual fund unit.
Sharpe Ratio
Sharpe ratio is defined as the risk-adjusted return measure of a financial portfolio.
Short-Term Investment
A short-term investment is an asset bought with an investment life of less than one year.
Small-Cap
Small-cap is the market capitalization of companies’ stocks with a market value of less than $3 billion.
Social Bonds
Social bonds are fixed-income securities issued to finance or refinance new and existing projects with positive social impact. Also, these projects often target unemployed individuals from low-income or vulnerable populations.
Financial Glossary: Investment Terminology for T
Tax-Free Savings Account (TFSA)
A Tax-free savings account is a registered investment savings account type that helps you earn tax-free money.
Term Deposit
Term deposit is a deposit type or the total money kept for a fixed maturity. The payee cannot withdraw this amount until the maturity period ends.
Term to Maturity
Term to maturity specifies the time before your bond gets redeemed and matures.
Ticker Symbol
A ticker is a one- to five-letter symbol used to search for a company on a stock exchange or to represent specific securities or assets.
Time Horizon
Time horizon or investment time horizon is when investors would have their interest invested in a scheme. It is also the time horizon at which investors would withdraw from their investment.
Trailing Commission
A trailing commission is an ongoing fee you pay your financial advisor annually when you own an investment. The commission varies depending on the series of funds and fund type you purchased.
Treasury Bill (T-bill)
A Treasury bill is a security or money market instrument that the government issues for the short term. It’s a bill that is an affirmation note of future repayment.
Trade Deficit
A trade deficit, also known as a negative trade balance, occurs when a country’s imports are higher than its exports. Also, a trade deficit represents the currency flow from local/domestic markets to international boundaries.
Trading Range
A trading range is the difference between low and high prices within a particular time frame.
Tightening Cycle
A tightening cycle refers to a cycle of interest rate hikes. It’s also the time characterized by lower lending needs, lower interest rates, and an advancement in the available credit amount.
Financial Glossary: Investment Terminology for U
Units
A unit is part of ownership in a mutual fund, or units show the extent of your ownership in a mutual fund.
Unitholder
An unitholder is an investor who owns more than one unit in an investment trust.
United Nations-convened Net-Zero Asset Owner Alliance
The UN convened the Net-Zero Asset Owner Alliance (NZAOA), a group of institutional investors committed to achieving net-zero GHG emissions in their investment portfolios by 2050.
United Nations Global Compact (UNGC)
UNGC is a strategic policy and initiative that aims to mobilize a worldwide movement of sustainable stakeholders and companies in the fields of anti-corruption, human rights, environment, and labor.
United Nations Supported Principles for Responsible Investment (PRI)
It’s an official investors’ network that aims to boost sustainable investment by implementing environmental, governance, and social factors.
Financial Glossary: Investment Terminology for V
Valuation
Valuation is a process of determining the estimated value of an asset, company, or investment compared to its current market value or cost.
Value Investing
It is an investment strategy comprising picking stocks that seem to be trading for less value compared to their book or intrinsic value.
Value Stock
Value stock is a stock that’s known to be underpriced in the stock market.
Value-Style Funds
Value-style funds refer to an open-ended equity scheme that invests in undervalued stocks in the market.
Volatility
The amount and regularity with which investments vary in value.
VRM (Vendor Risk Management)
Vendor risk management is a corporate-level advantage that monitors vendor access and behavior and ensures that the vendor doesn’t create a situation that can hamper an enterprise’s business in any way.
Financial Glossary: Investment Terminology for W
Wtd. Avg. Market Cap
A market index assigns weights to its components based on their total market capitalization. Also, this weighting system is called a weighted average market cap. In this case, larger companies have a greater portion of the index, such as the S&P 500 Index.
Weighted Average Maturity
Weighted average maturity refers to calculating a fund’s sensitivity to possible changes in the interest rates. Additionally, WAM is calculated by weighting every bond maturity present in the fund by the fund’s net assets percentage.
Financial Glossary: Investment Terminology for Y
YTD
Year-to-date return is the profit on an investment involving appreciation and interest or dividends.
YTD Return
It is the profit an investor makes through the investment since the first trading day of the present year.
YTD Return (w load)
YTD or year-to-date return on investments involves appreciation and interest or dividends minus the applicable charges or expenses.
Yield
Yield is the annual return rate percentage on the capital. Moreover, the interest or dividend paid by any company is represented as the current price percentage.
Yield to Maturity
It is the total return rate you expect from investments in debt mutual funds or bonds if the same is held to its maturity date.
Yield to Maturity Distribution
The yield-to-maturity distribution reflects the total return rate an investor could receive if a bond makes all possible interest payments and repays the original principal.
Financial Glossary: Investment Terminology for Z
Zero-Coupon Bond
Zero-coupon bonds are sold at a discount (fraction) of their face value, offering the principal amount at maturity but skipping regular interest payments.
Hope this investment terminology will help you get started in the investment world.
Also read: Stock Market Glossary
End Note
In all, the above investment terminology or terms will help all beginner investors out there have a better financial understanding they can implement in their business.
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