Indian Financial Terms Glossary

A company registered with SEBI that manages mutual fund schemes. AMCs pool money from investors and invest it in securities like stocks, bonds, and money market instruments. Examples include SBI Mutual Fund, HDFC AMC, and ICICI Prudential AMC. Each AMC charges an expense ratio for managing the fund.

A financial product that provides a series of regular payments in exchange for a lump sum investment. In India, annuities are most commonly associated with NPS, where 40% of the corpus must be used to purchase an annuity at retirement. Annuity rates in India typically range from 5-7%, and the income is fully taxable at your slab rate.

The total market value of all investments managed by a mutual fund or AMC. Higher AUM generally indicates investor confidence but does not guarantee better returns. India's mutual fund industry AUM crossed ₹66 lakh crore in 2025. Large AUM funds may find it harder to generate alpha in small-cap segments.

One basis point equals 0.01%. Used to express small changes in interest rates or expense ratios. For example, a 25 bps RBI repo rate cut means a 0.25% reduction. An expense ratio of 15 bps means 0.15% annual charge. Over long SIP tenures, even 50 bps difference in expense ratio can mean lakhs in corpus difference.

The annualised rate of return that smooths out volatility over a period. CAGR shows what an investment would have grown at if it grew at a steady rate each year. For example, Nifty 50 has delivered approximately 12% CAGR over 20-year periods. CAGR is useful for lumpsum investments but XIRR is more accurate for SIPs with multiple cash flows.

Profit earned from selling a capital asset (stocks, mutual funds, property, gold). In India, capital gains are classified as Short-Term (STCG) or Long-Term (LTCG) based on holding period. For equity, LTCG threshold is 12 months; for property, it is 24 months. LTCG on equity is taxed at 12.5% above ₹1.25 lakh per year (FY 2025-26).

The minimum property value set by the state government for stamp duty and registration purposes. Also called ready reckoner rate or guidance value. If the actual transaction value is lower than the circle rate, stamp duty is charged on the circle rate. The difference between circle rate and actual value may also attract tax under Section 56(2)(x) for both buyer and seller.

A component of the Pradhan Mantri Awas Yojana (PMAY) that provides interest subsidy on home loans for EWS, LIG, MIG-I, and MIG-II categories. The subsidy ranges from 3% to 6.5% on loan amounts up to ₹6-12 lakh, with maximum benefit of approximately ₹2.67 lakh. The subsidy is credited upfront to the loan account, reducing the outstanding principal.

A cost-of-living adjustment paid to government employees and pensioners to offset inflation. DA is revised twice a year (January and July) based on the All India Consumer Price Index. It is a key component in EPF and gratuity calculations as both are computed on Basic + DA. Current DA for central government employees exceeds 50% of basic pay.

A mutual fund that invests primarily in fixed-income securities like government bonds, corporate bonds, and money market instruments. Debt funds carry lower risk than equity funds but also lower return potential (6-8% historically). Since April 2023, all debt fund gains are taxed at the investor's income tax slab rate, regardless of holding period.

The rate at which education costs increase year over year. In India, education inflation runs at 8-12% annually — significantly higher than general CPI inflation of 5-6%. IIT fees have increased from ₹90,000/year (2014) to ₹2.5 lakh/year (2025). This means a degree costing ₹10 lakh today will cost approximately ₹22 lakh in 10 years at 8% education inflation.

A tax status where the investment, returns, and maturity are all tax-free. In India, EPF, PPF, and SSY enjoy EEE status, making them the most tax-efficient instruments. However, EPF contributions above ₹2.5 lakh per year now attract tax on interest earned on the excess amount (from FY 2021-22 onwards).

A type of equity mutual fund that qualifies for tax deduction under Section 80C of the Income Tax Act (up to ₹1.5 lakh per year under the old regime). ELSS has the shortest lock-in period (3 years) among all Section 80C instruments. It offers market-linked returns (historically 12-15% CAGR) with the dual benefit of tax saving and wealth creation.

A readily accessible cash reserve to cover unexpected expenses or income disruption. The standard recommendation is 3-6 months of essential expenses for salaried individuals and 6-12 months for self-employed or single-income households. Emergency funds should be parked in liquid funds, savings accounts, or short-term FDs — not in equity or locked instruments.

A fixed monthly payment made to repay a loan, consisting of both principal and interest components. The EMI amount depends on the loan amount, interest rate, and tenure. In the early years of a home loan, the interest component dominates (70-80% of EMI); the ratio gradually shifts towards principal repayment over time.

A mandatory retirement savings scheme for salaried employees in India managed by EPFO. Both employee and employer contribute 12% of Basic + DA. The employee's 12% goes entirely to EPF, while the employer's 12% is split: 3.67% to EPF and 8.33% to EPS. Current interest rate is 8.25% (FY 2024-25), compounding annually. EPF enjoys EEE tax status.

A pension scheme under EPFO where 8.33% of the employer's contribution (capped at ₹1,250/month when basic exceeds ₹15,000) goes to EPS. After 10 years of service and reaching age 58, you receive a monthly pension. EPS does not earn compound interest — it provides a fixed pension based on a formula using last drawn salary and years of service.

The annual fee charged by a mutual fund for managing your money, expressed as a percentage of AUM. It is deducted daily from the fund's NAV, so you never see it as a separate charge. Index funds charge 0.1-0.3%, while active funds charge 0.5-2.0%. Over a 20-year SIP, the difference between 0.15% and 1.5% expense ratio can mean ₹15-20 lakh less corpus.

A bank deposit with a fixed tenure and guaranteed interest rate. FD rates in India range from 5.5-7.5% depending on tenure and bank. FD interest is fully taxable at your slab rate. TDS of 10% is deducted if annual interest exceeds ₹40,000 (₹50,000 for senior citizens). Post-tax returns from FDs often fail to beat inflation.

A movement focused on aggressive saving and investing to achieve financial independence decades before traditional retirement age. In India, FIRE typically requires a corpus of 25-33x annual expenses, adjusted for 6-7% inflation, healthcare costs, and the absence of robust social security. Common variants include Lean FIRE, Fat FIRE, and Coast FIRE.

A mutual fund category that can invest across market capitalisations (large-cap, mid-cap, small-cap) without any minimum allocation requirement. The fund manager has full flexibility to shift allocations based on market conditions. Flexi-cap funds are suitable for investors who want professional allocation decisions across the market cap spectrum.

A lump sum benefit paid by an employer to an employee who has completed 5 or more years of continuous service. Under the Payment of Gratuity Act, the formula is: (Last drawn salary x 15/26) x Years of service. For covered employees, the maximum tax-exempt gratuity is ₹25 lakh. Gratuity is mandatory for establishments with 10+ employees.

A method to calculate the economic value of a person's life for insurance purposes. HLV considers current income, expected salary growth, years until retirement, inflation, and existing assets. It estimates the present value of all future earnings that would be lost if the person dies. This method typically yields higher cover recommendations than the income multiple method.

A salary component that provides tax exemption under Section 10(13A) for rent paid by salaried employees. The exemption is the minimum of: actual HRA received, 50% of salary (metro) or 40% (non-metro), and actual rent paid minus 10% of salary. HRA exemption is available only under the old tax regime. You need rent receipts as documentation.

A mutual fund that replicates a market index (like Nifty 50 or Sensex) by holding the same stocks in the same proportions. Index funds have very low expense ratios (0.1-0.3%) because they don't require active fund management. Over 10-20 year periods, most active large-cap funds in India fail to beat the Nifty 50 index after accounting for higher expense ratios.

A method of adjusting the purchase price of an asset for inflation using the Cost Inflation Index (CII) published by the Income Tax Department. Indexation reduces taxable capital gains by increasing the cost base. Prior to April 2023, debt fund investors could use indexation to lower tax liability. For property, indexation is available under the old capital gains regime (20% with indexation).

Gains from selling assets held beyond the specified holding period. For equity/equity mutual funds: 12 months (taxed at 12.5% above ₹1.25 lakh exemption). For debt funds: taxed at slab rate regardless of holding period (post-April 2023). For property: 24 months under the new regime (12.5% without indexation) or old regime (20% with indexation). The choice of regime can significantly impact property sale tax.

Investing a large amount of money all at once, as opposed to spreading it over time through SIP. Lumpsum works best when markets are undervalued or after a significant correction. For windfall amounts (bonus, inheritance), a Systematic Transfer Plan (STP) from liquid fund to equity fund over 6-12 months can reduce timing risk.

The per-unit price of a mutual fund, calculated as (Total assets - Liabilities) / Number of units. NAV is updated at the end of each trading day. When you invest in a SIP, units are allotted at the prevailing NAV. A higher NAV does not mean a fund is expensive — it simply reflects the accumulated growth since inception.

An alternative income tax structure introduced in Budget 2020 (revised in 2023) with lower slab rates but almost no deductions or exemptions. Under the new regime (FY 2025-26): income up to ₹4 lakh is tax-free (with ₹75,000 standard deduction), 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh, 25% for ₹20-24 lakh, and 30% above ₹24 lakh. Tax rebate of ₹60,000 makes income up to ₹12 lakh effectively tax-free.

A government-sponsored retirement savings scheme regulated by PFRDA. Contributions go to Tier I (locked until 60) or Tier II (liquid) accounts. NPS offers additional ₹50,000 tax deduction under Section 80CCD(1B) in the old regime. At maturity, 60% can be withdrawn tax-free and 40% must buy an annuity. Fund management charges are extremely low (0.01-0.09%).

The original income tax structure with higher slab rates but numerous deductions and exemptions (Section 80C, 80D, HRA, LTA, etc.). Beneficial for taxpayers with high deductions (home loan, HRA, Section 80C investments, NPS). The break-even point is approximately ₹3.75-4.25 lakh in total deductions — above this, the old regime often saves more tax.

A unique 10-character alphanumeric identifier issued by the Income Tax Department. PAN is mandatory for filing income tax returns, opening bank accounts, purchasing mutual funds, and conducting financial transactions above specified thresholds. PAN is now linked to Aadhaar, and an unlinked PAN becomes inoperative.

A government housing scheme providing interest subsidy on home loans for first-time buyers in EWS, LIG, MIG-I, and MIG-II income categories. The subsidy ranges from 3% to 6.5% on eligible loan amounts, with maximum benefit of approximately ₹2.67 lakh. The scheme requires that neither the beneficiary nor family members own a pucca house in India.

A government-backed savings scheme with a 15-year lock-in and current interest rate of 7.1% (compounded annually). PPF has EEE tax status — contributions qualify for Section 80C deduction (up to ₹1.5 lakh), interest is tax-free, and maturity is tax-free. Annual investment limit is ₹1.5 lakh. Partial withdrawal is allowed from the 7th year. PPF can be extended in blocks of 5 years after maturity.

A unique 12-digit identifier assigned to every NPS subscriber. PRAN is portable across jobs and locations — it stays with you throughout your career. You can use PRAN to access your NPS account, check balances, and manage contributions through the CRA (Central Recordkeeping Agency) portal or the UMANG app.

A financial comparison between renting a home and buying one, accounting for EMI, opportunity cost of down payment, property appreciation, rent escalation, maintenance, tax benefits, and stamp duty. In most Indian metros, renting is financially superior when rental yield is below 3-4% and home loan rates are above 8%. The break-even typically favours buying only with 10+ year horizons.

The annual rental income from a property expressed as a percentage of its market value. Gross rental yield = (Annual rent / Property value) x 100. Net rental yield deducts maintenance, property tax, insurance, and vacancy costs. In Indian metros, gross rental yields typically range from 2-4%, which is lower than most fixed-income instruments.

The rate at which the Reserve Bank of India (RBI) lends short-term money to commercial banks. The repo rate is the primary tool of monetary policy — a cut signals lower borrowing costs, while a hike signals tighter liquidity. Home loan EMIs are directly linked to the repo rate through the external benchmark lending rate (EBLR). As of 2025, the repo rate is 6.25%.

An investment strategy where a fixed amount is invested at regular intervals regardless of market conditions. When prices are low, you buy more units; when prices are high, you buy fewer units. Over time, this averages out the purchase cost per unit. SIP is the most common implementation of rupee cost averaging in India.

The percentage of a retirement corpus that can be withdrawn annually without running out of money over a specified period. The commonly cited 4% rule is based on US data and is too aggressive for India due to higher inflation (6-7% vs 2-3%). A conservative Indian SWR is 3-3.5% for a 40-year retirement or 3.5-4% for a 30-year retirement.

A capital gains tax exemption available when you sell a residential property and reinvest the gains in another residential property within specified timelines. The new property must be purchased within 2 years or constructed within 3 years of the sale. If you cannot invest immediately, you can deposit the gains in a Capital Gains Account Scheme (CGAS) at a bank.

A provision of the Income Tax Act allowing deduction of up to ₹1.5 lakh per year from taxable income for specified investments and expenses. Eligible instruments include ELSS, PPF, EPF, NSC, SSY, life insurance premium, tuition fees, and home loan principal repayment. Section 80C deduction is available only under the old tax regime.

An Income Tax Act provision allowing deduction for health insurance premiums. Deduction of up to ₹25,000 for self and family, plus ₹25,000 for parents (₹50,000 if parents are senior citizens). Total maximum deduction can reach ₹1 lakh in specific scenarios. Available under the old tax regime only. Preventive health check-up expenses up to ₹5,000 are included within this limit.

A method of investing a fixed amount in a mutual fund at regular intervals, typically monthly. SIP automates investing through bank mandate and enables rupee cost averaging. India has nearly 10 crore active SIP accounts with monthly inflows exceeding ₹26,000 crore. SIPs can be started with as little as ₹500/month. Each SIP installment is treated as a separate purchase for tax purposes.

A government savings scheme for the girl child, offering 8.2% interest (FY 2025-26) with EEE tax status. An account can be opened for a girl child below 10 years of age. Minimum annual deposit is ₹250 and maximum is ₹1.5 lakh. The account matures when the girl turns 21. Partial withdrawal of 50% is allowed after age 18 for education. Contributions qualify for Section 80C deduction.

A state-level tax levied on property transactions, calculated as a percentage of the property value or circle rate (whichever is higher). Stamp duty rates vary by state — typically 5-8% of property value. Many states offer concessions for women buyers (0.5-2% lower rates). Stamp duty is a significant upfront cost that affects the total cost of home ownership.

Gains from selling assets held for less than the specified holding period. For equity/equity mutual funds: under 12 months, taxed at 20% (FY 2025-26). For debt funds: taxed at slab rate. For property: under 24 months, taxed at slab rate. STCG on equity was increased from 15% to 20% in the Union Budget 2024.

A SIP variant where the monthly investment amount increases by a fixed percentage or amount each year. Also called a top-up SIP. For example, starting with ₹10,000/month and increasing by 10% annually. Over 15-20 years, a step-up SIP creates significantly more wealth than a flat SIP — typically 50-70% more at 10% annual step-up. Ideal for salaried professionals whose income grows annually.

A strategy where a lump sum is parked in a liquid or debt fund, and a fixed amount is transferred to an equity fund at regular intervals. STP provides the benefit of rupee cost averaging for lump sum amounts. Commonly used for deploying bonuses, inheritance, or maturity proceeds into equity over 6-12 months to reduce timing risk.

A strategy where a fixed amount is periodically redeemed from a mutual fund investment. SWP is commonly used by retirees to generate regular income from their corpus. Each withdrawal triggers capital gains tax on the gain component. An SWP from an equity fund after 1+ year holding qualifies for LTCG tax treatment (12.5% above ₹1.25 lakh exemption).

A mechanism where tax is deducted at the point of income generation. TDS applies to salary, FD interest (10% above ₹40K), rent payments (10% above ₹50K/month), property sale (1% of sale value), and more. TDS is not your final tax liability — it is an advance payment that is adjusted when you file your ITR. Form 26AS shows all TDS credits.

A pure life insurance product that pays a death benefit to nominees if the policyholder dies during the policy term. Term insurance has no maturity benefit — if you survive the term, you get nothing back. This makes it extremely affordable: a 30-year-old can get ₹1 crore cover for approximately ₹8,000-12,000 per year. Term insurance is the foundation of financial planning for anyone with dependents.

A unique 12-digit number assigned to every EPF member by EPFO. UAN remains the same even when you change employers — each employer links a new Member ID to your UAN. UAN is used to check EPF balance, submit transfer claims, and make withdrawals online. Aadhaar, PAN, and bank account must be linked to UAN for online services.

An insurance product that combines life cover with market-linked investment. A portion of the premium pays for life cover and charges; the rest is invested in equity or debt funds. ULIPs have high charges in the initial years (premium allocation, fund management, mortality charges) and a 5-year lock-in. Generally, buying separate term insurance and investing in mutual funds yields better returns.

An extension of EPF where employees can voluntarily contribute more than the mandatory 12% of Basic + DA. VPF earns the same interest rate as EPF (8.25% in FY 2024-25) and has EEE tax status. However, interest on contributions exceeding ₹2.5 lakh per year is now taxable. VPF is a good option after maxing out PPF (₹1.5 lakh) if you want guaranteed, tax-efficient returns.

The most accurate way to measure returns on investments with irregular cash flows (like SIP). Unlike CAGR, XIRR accounts for the exact dates and amounts of each transaction. For a ₹10,000/month SIP that grows to ₹4.5 lakh in 3 years from ₹3.6 lakh invested, the XIRR is approximately 14.8%. Platforms like Kuvera and Groww show XIRR in your portfolio dashboard.