Like professionals in the medical industry, the jargon thrown around by professional in the financial sector can be complex especially for beginners or non-investors. Terminology that needs to be common knowledge can make a lot of people wary of investing in stocks and mutual funds. Therefore, knowing a few of these terminologies will make a conversation that was once boring and mind blowing much clearer.
Here is a glossary of key phrases to help you as an armature investors get started with investment.
What Are Mutual funds?
A mutual fund is normally run by a fund manager. This fund is a pool of money used to buy financial securities with the aim of generating a good profit or return. An example of a financial security to buy includes stocks and bonds.
What Are Bonds?
Bonds are more like loans for raising capital, but to be more precise they are high-security debt instruments in which the investor tends to lend money to an entity to help them raise capital. Bonds are very secure as they tend to be used by government and councils and are rarely defaulted and the interest earned can either be fixed or variable depending on the terms.
What Are Stocks?
Stock gives you ownership to a company and is an investment tool that also allows you to vote in meetings and earn a return. You can earn a return by either seeing an increase in stock price and also profits that will then allow you to get a dividend.
What Are Returns?
Financial return is the money you earn on any investment over a period of time. The most common types of returns on financial investments are dividends, interest, and capital gains which we have mentioned a few times above.
What Are Debt Funds?
This are considered low risk investments that have a specified rate of return and date when the instrument will mature for you to cash out. This fund is invested in securities like treasury bill, bonds and commercial papers for a fixed income in return. They are very secure and no risk at all.
What Are Certificates Of Deposit (CDs)?
A Certificate of Deposit (CD) is your financial investment savings account. Financial companies use this to locks your funds for a fixed tenure typically between 6 months to 5 years and in return offers interest at rates higher than a regular savings account. When it matures you can redeem your cash and any interest accrued over the period.
What Are Treasury Bills?
These are financial instruments offered by government and are commonly referred to as T-bills. Since they have no interest on them, the way you earn a profit is by buying them at a discount and selling then back to the government at their nominal value.
What Are Equity Funds?
These are known also as stock funds as they primarily invest in company shares and stocks either passively or actively.
What Are Bluechip Funds?
Blue-chip are companies that do really well revenue wise, therefore, a blue-chip funds is a mutual funds that invest in well-established companies that are mainly large and have credibility in their brand since they are less volatile and often offer consistent returns to their stakeholders.
What Are Arbitrage Funds?
This is what most fund managers aim for when they scout the financial tools, they try and generate returns by leveraging the price difference in share across markets. Obviously to make good returns, they buy shares at a lower price and sell them for profit.
What is Diversification?
This is simply having a different security portfolio in your fund. This could be cash, stocks, and bonds.
What is Risk?
This is not new to you am sure, the risk we are talking about here is based on your goals and to avoid losing your investment, you must evaluate the risk of your financial securities.
What Is an Investment Strategy?
Your success can be defined by your strategy, and this are the steps an investor takes to reach decision of what, how and when to do buy or sell. This strategy is based on investor’s goals, corpus amount, expected returns, and risk-appetite