Securities markets glossary

75 terms from the mutual fund, derivatives and research papers, each in one plain sentence.

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Absolute return: The total percentage gain or loss over a period, without regard to its length.
American option: An option that can be exercised on any day up to expiry.
Arbitrage: Buying in one market and selling in another at the same time to gain from a price difference, without price risk.
Asset allocation: Dividing money among kinds of asset, such as equity, debt and gold, to suit goals and risk.
Asset management company (AMC): The company that manages the investments of a mutual fund's schemes.
At the money: An option whose strike price equals the current price of the underlying.
Basis: The spot price minus the futures price.
Benchmark: An index against which the performance of a scheme or portfolio is compared.
Beta: A measure of how much a share or portfolio moves when the market moves.
Bond: A debt security: the issuer borrows and promises interest and repayment.
Bonus issue: Additional shares given free to existing shareholders in a fixed ratio.
Book value: The value of a company's equity as shown in its balance sheet.
CAGR: Compound annual growth rate: the yearly compounded rate that turns the beginning value into the end value.
Call option: A right, without obligation, to buy the underlying at the strike price.
Clearing corporation: The body that guarantees settlement of trades on an exchange and collects margins.
Closed-ended scheme: A scheme open for subscription only during its offer; units are then traded on an exchange.
Contango: A market in which the futures price is above the spot price.
Corporate action: An event started by a company that affects its securities, such as a dividend, bonus, split or rights issue.
Cost of carry: The cost of holding an asset until a future date: mainly interest, less any income from the asset.
Coupon: The interest rate a bond pays on its face value.
Custodian: The entity that holds the securities of a mutual fund or other institution in safe keeping.
Delta: The change in an option's premium for a one rupee change in the underlying.
Dematerialisation: Converting paper certificates into electronic holdings in a depository account.
Depository: An institution that holds securities in electronic form.
Derivative: A contract whose value comes from the price of something else, called the underlying.
Diversification: Spreading money over many securities so that no single one decides the result.
Dividend yield: Dividend per share divided by the market price.
Earnings per share (EPS): Profit available to equity shareholders divided by the number of shares.
Entry and exit load: A charge on buying or redeeming units. An exit load is deducted from the NAV at redemption.
European option: An option that can be exercised only at expiry.
Expense ratio: The yearly expenses of a scheme as a percentage of its assets.
Face value: The nominal value of a share or bond, as stated by the issuer.
Forward contract: A private agreement to buy or sell at a fixed price on a future date.
Fundamental analysis: Judging a security by studying the economy, the industry and the company's finances.
Futures contract: A standardised forward traded on an exchange and settled through a clearing corporation.
Hedging: Taking a position that offsets the risk of another.
In the money: An option that has intrinsic value: a call with spot above strike, or a put with spot below strike.
Index: A number that tracks the prices of a chosen group of securities.
Initial margin: Money collected upfront when a derivatives position is opened.
Initial public offer (IPO): The first sale of a company's shares to the public.
Intrinsic value: What an option would be worth if exercised now; never less than zero.
Liquidity: How easily an asset can be turned into cash without moving its price.
Lot size: The fixed quantity of the underlying in one derivatives contract.
Mark to market: Valuing a position at the current price and settling the gain or loss daily.
Market capitalisation: Share price multiplied by the number of shares outstanding.
Net asset value (NAV): The value of one unit of a scheme: assets less liabilities, divided by units.
Open interest: The number of derivatives contracts outstanding at a point in time.
Open-ended scheme: A scheme that sells and redeems units on every business day at NAV-based prices.
Out of the money: An option with no intrinsic value.
Premium: The price paid by the buyer of an option to the seller.
Price to earnings ratio (P/E): Share price divided by earnings per share.
Primary market: The market in which securities are first issued.
Put option: A right, without obligation, to sell the underlying at the strike price.
Registrar and transfer agent: The entity that keeps investor records and processes transactions for a fund or company.
Rights issue: An offer of new shares to existing shareholders in proportion to their holding.
Risk profile: An assessment of how much risk an investor is able and willing to take.
Secondary market: The market in which already issued securities are traded among investors.
Settlement: The exchange of securities and money that completes a trade.
Sharpe ratio: Return above the risk-free rate per unit of total risk.
SIP: Systematic investment plan: investing a fixed amount at regular intervals.
Sponsor: The entity that sets up a mutual fund.
Spot price: The price for immediate delivery.
Standard deviation: A measure of how widely returns vary around their average.
Stock split: Dividing each share into several of smaller face value.
STP: Systematic transfer plan: moving a fixed amount regularly from one scheme to another.
Straddle: Buying (or selling) a call and a put with the same strike and expiry.
Strike price: The price at which an option can be exercised.
SWP: Systematic withdrawal plan: redeeming a fixed amount at regular intervals.
Technical analysis: Judging a security from its past prices and volumes.
Theta: The fall in an option's premium as a day passes, other things equal.
Time value: The part of an option's premium above its intrinsic value.
Trustee: The body that holds a mutual fund's property for the benefit of unit holders and oversees the AMC.
Underlying: The asset or index on which a derivative is based.
Volatility: The degree to which a price moves up and down.
Yield to maturity: The yearly return on a bond bought at its current price and held until it is repaid.

Why definitions matter in these papers

A large share of any multiple choice paper on finance is vocabulary. The question gives a description and asks for the term, or gives the term and asks which statement about it is true. The wrong options are usually neighbouring terms: basis and spread, intrinsic value and time value, sponsor and trustee, primary and secondary market. So it is not enough to recognise a word; you must be able to tell it from the words beside it.

Pairs that are confused

Sponsor, trustee, AMC: the sponsor sets the fund up; the trustee holds its property for unit holders and supervises; the AMC manages the money.
Custodian and registrar: the custodian keeps the securities; the registrar keeps the investors' records.
Forward and future: both fix a price for a later date; a future is standardised, exchange traded and guaranteed by a clearing corporation.
Intrinsic value and time value: together they make the premium. Intrinsic value is what exercise would give now; the rest is time value.
Volume and open interest: volume counts trades in a period; open interest counts contracts still outstanding.
Absolute return and CAGR: the first ignores time; the second is the compounded yearly rate.
Bonus and split: both increase the number of shares and lower the price in proportion; a bonus capitalises reserves, a split divides the face value.

Using the glossary

These are our own short definitions, written to be understood, not to be quoted. The official workbook defines each term more exactly and in the regulatory sense where one exists; when the two differ, learn the workbook's. A good exercise is to cover the right-hand side, define each term aloud in your own words, and check. Then do the reverse.

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An independent practice site. NISM is the National Institute of Securities Markets. This site is not connected with, approved by or paid by NISM or SEBI, and uses none of their logos. The questions are our own; none is taken from NISM's question bank, workbooks or mock tests, and a score here does not predict a result. Examination facts were read on nism.ac.in on 12 November 2026 and can change: check the page of your module on nism.ac.in before you pay or prepare. Nothing here is investment advice.