Daily use Financial Terms Glossary

Catastrophic Health Insurance

Catastrophic Health Insurance plans are special health insurance plans popular in USA and countries. They are somewhat like Critical Care policies in India. Catastrophic health insurance policies are meant to cover medical expenses arising due to severe or lengthy illnesses. Benefits on some policies are paid only when the threshold expense has been paid by the insured.

Penny Stock

A penny stock is the share of a listed company that is not doing too well. As a result, such a share trades at very low prices, often below its face value. Such shares are also thinly traded in the market due to their unpopularity. Penny stocks are dangerous to buy, since prices there can be notoriously unpredictable and even manipulated by promoters or brokers. Investors should steer clear of penny stocks and stick to more reputed companies with large traded volumes of shares.

Volatility

Volatility is one of the standard statistical ways to measure risk. Say you want to know a risk metric for shares of Infosys. One way to do this is to measure the volatility of its daily returns. For this, you tabulate its daily closing share prices for a long enough time horizon (say three years). Then you calculate daily return:

Then you can use a simple Excel spreadsheet formula to calculate standard deviation: Stdev. You need to select the entire column of daily returns as arguments to this formula, and express the result as a percentage.

Volatility is simply the square of the standard deviation.

Income Tax Returns

Income tax return is the document to be filed with Income Tax department by those whose income is taxable. Income tax return gives information about one's tax dues (from one's income sources) and tax paid in a financial year. Whatever tax is left to be paid is to be paid while filing income tax returns or if excess has been paid, it can be claimed for refund.

Foreign Exchange Market

The foreign exchange market (forex, FX, or currency market) is a global, worldwide decentralized over-the-counter financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency.

Hedge Funds

A hedge fund is a private investment fund that participates in a range of assets and a variety of investment strategies intended to protect the fund's investors from downturns in the market while maximizing returns on market upswings. Wealthy investors use hedge funds. In India hedge funds are not very popular though.

Hedge funds are different from mutual funds and other types of traditional investment portfolios in that they undertake a wider range of investment and trading activities than traditional long-only investment funds, and invest in a broader range of assets, including equities, bonds and commodities.

Tax Deducted at Source (TDS)

Tax Deducted at Source (TDS) is a method of collecting tax at the source where income is generated. A number of incomes such as salary, interest, commission, etc attract TDS. TDS is also known as withholding tax and is deducted by the one making payment to you.

Permanent Account Number (PAN)

Permanent account number is a unique 10-digit alphanumeric series issued by the Income Tax Department to tax assessees. Quoting PAN is mandatory for several financial transactions and PAN serves as a measure for checking tax evasion.

Corporate Agent

Banks, companies, housing societies, brokers etc, who act as agents form the corporate agents of insurance companies. Corporate agents are licensed by IRDA. These constitute secondary sources of sales for insurers; individual agents bring majority of the business for insurers. SBI Life is an exception; bancassurance is the primary source of business for it.

Secured Loans

Banks and NBFCs often categorize loans as secured loans and unsecured loans. Secured loans are those for which borrowers have to pledge some assets as security or collateral against their borrowing. The loan is thus secured against a financial asset or property, gold, etc which the lender can take possession of in case the borrower defaults on repayment and sell it to recover dues. Secured loans have lower interest rate than unsecured loans. Examples are home loan, car loan, loan against property, loan against gold, loan against shares.