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A few of the terms used in Personal Finance world


When you read about stuff in specific areas like medical, engineering etc, you will come across certain words that you won’t normally find in general discussion. The field of Personal Finance is no different. So, here is a list of a few such words. Bracketed words are areas where the term is normally used.


Amortization (in loans)

Its a month wise schedule of loan (interest and principal) repayment, breaking both the components up to help customer understand how the loan will be repaid over time.


Credit History (in loans, credit cards)

Its a record of a person’s past borrowings and repayment. There are agencies that provide credit reports containing a person’s credit history. Financial institutions and banks use these reports to analyse creditworthiness of applicants.


Principal (in loans and FDs)

Amount of sum borrowed or balance outstanding without an interest that has not become due for payment. In FDs, a principal is the amount you have invested for a specific term.


Future value (in deposits)

The principal or original amount and compound interest calculated thereon and stated as of a defined future date.


Nomination (in policies and FDs)

A right given to the policy holder for his life insurance policy to appoint a person or persons to receive policy amount in case of a policy becomes a claim by death. Similar rule applies to FD also. (Nomination has contextual meanings, which vary among different kinds of investments. I will cover them in detail in next post.)


TDS (in FDs)

Tax Deducted at Source.
It is a form of income tax which is deducted at a prescribed rate when a payment exceeds certain limits. The responsibility of deduction of tax and depositing it with Income tax department lies with the person or an institution making payment. For e.g. TDS on your fixed deposit will be deducted by the bank if interest thereon exceeds limits specified by the IT department.


Bonds (in Investments)

Bonds are issued by government or corporates. When you purchase bonds, basically you are giving money as a loan. Bonds have specific maturity date and an interest rate at which it provides you with regular interest during the tenure of a Bond and returns your invested amount on maturity.


Inflation (in investments)

It’s a growth in normal prices of goods and services over time. Purchasing power decreases as the rate of inflation increases. In short, inflation is the rate at which things get costlier over time.


Asset Allocation (in MFs and in general)

The process by which a fund manager chooses what part of the money will be invested in which instruments, like stocks, bonds, MMIs etc. to diversify the investment.


Diversification (in investments)

Process of selecting a mixture of different asset classes for your investment to minimize risk.


STT (in stock tading)

Securities Transaction Tax.
It’s a tax applicable on transactions of securities like purchasing or selling of shares, stocks etc…


SIP (in mutual funds)

Systematic Investment Plan.

Systematic approach of regular and periodic investments (usually for long terms) for cost averaging and better returns over time.


Assignment (in policies)

The transfer of an ownership of a life insurance policy from one person to another.


Annuity (in policies and pension plans)

A contract between a person and an insurance company, wherein for your investment or payment, the company agrees to pay either regular stream of income or a lump sum amount at some future maturity date.


Grace period (in policies)

A period between the date on which the premium of a policy becomes due and the date on which the policy will lapse if the premium is not paid. Normally 30 days are given as GP. If an insured dies during this period, the unpaid premium is deducted from the policy proceeds.


Paid up value (in policies)

When a premium of a life insurance policy is not paid on time and it lapses, the policy is said to become a paid up policy. Sum Assured in such case is reduced in proportion to the number of premiums paid. Such policy acquires paid up value. This value is then considered in place of original sum assured while applying for a loan against it or surrendering it.


Surrender Value (in policies)

The policy holder will get this value in case he decides to close or exit the policy before its maturity.


Insured Declared Value (in policies)

Its a depreciated value of a vehicle, which is agreed upon by the policy holder and insurance company. This value is then used to calculate premium.


ELSS (in mutual funds)

Equity Linked Savings Scheme. Its a special category of mutual funds. They have a lock-in period of three years, invests mostly in equity related instruments and enables the investor to exempt up to Rs.150000 from his taxable income by investing in such funds.


All right, these were some of the commonly used PF specific terms to start to in 2019. Still there are many such terms which I am hoping to come up with in a seperate post. A new year has already started, So a very happy new year to all.
Will be back soon…

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