Financial Glossary

Income tax section that lets you deduct up to ₹1.5 lakh a year for investments such as PPF, EPF, ELSS, life insurance premiums and tuition fees. Applies under the old tax regime only.

Spreading a loan over fixed instalments so that each payment covers interest first and the rest reduces the principal. An amortization schedule lists this split month by month.

Compound Annual Growth Rate. The steady yearly rate at which an investment would have grown to reach its final value, smoothing out ups and downs.

A small extra levy added on top of income tax, currently 4% health and education cess on the tax plus any surcharge.

The three parts of GST. For sales within a state the tax splits equally into Central GST and State GST. For sales between states a single Integrated GST applies.

A three digit credit score from 300 to 900. A higher score, usually 750 or more, helps you get loans at better rates.

Cost to Company. The total yearly amount an employer spends on you, including salary, PF contribution, gratuity and other benefits. Your in-hand pay is lower.

The real annual return after counting the effect of compounding. A deposit that compounds quarterly has an effective yield slightly above its stated rate.

Equity Linked Savings Scheme. A mutual fund that invests mainly in shares and qualifies for Section 80C deduction, with a three year lock-in.

Equated Monthly Instalment. The fixed amount you pay each month to repay a loan, made up of principal and interest.

Employees Provident Fund. A retirement savings scheme where you and your employer each contribute 12% of basic salary. The government declares the yearly interest rate.

Fixed Deposit. A bank deposit that pays a fixed interest rate for a chosen period. Breaking it early usually carries a penalty.

Goods and Services Tax. The indirect tax on most goods and services in India, charged at slabs such as 5%, 12%, 18% and 28%.

A lump sum paid by an employer to an employee who has completed at least five years of service, based on last drawn salary and years worked.

Karat measures gold purity. 24K is pure gold (99.9%). 22K is about 91.6% gold, mixed with other metals for strength and used in most jewellery.

House Rent Allowance. A part of salary for rent. A portion can be exempt from tax under the old regime if you pay rent, based on a set formula.

The amount credited to your bank account each month after deductions such as PF, professional tax and income tax.

The current market value of your vehicle as agreed with the insurer. It is the most you can claim if the vehicle is stolen or totally damaged.

Investing a single large amount at once, as opposed to a series of smaller regular investments such as a SIP.

The loan amount as a percentage of the asset value. A lender giving ₹8 lakh against a ₹10 lakh asset has an LTV of 80%.

Marginal Cost of funds based Lending Rate. A benchmark banks use internally to price loans. Many newer loans are linked to the repo rate instead.

Net Asset Value. The per unit price of a mutual fund, calculated at the end of each trading day.

A discount on your vehicle insurance premium for each year you do not make a claim, which can build up to 50%.

National Pension System. A government backed retirement scheme with an extra deduction of up to ₹50,000 under Section 80CCD(1B).

Two ways to calculate income tax. The old regime has higher slab rates but allows deductions such as 80C and HRA. The new regime has lower slab rates with fewer deductions.

Paying part or all of a loan earlier than scheduled. It cuts the interest you pay, and some lenders charge a fee for it.

Public Provident Fund. A 15 year government savings scheme with tax free interest and a yearly deposit limit of ₹1.5 lakh.

The amount you pay to an insurer, monthly or yearly, to keep a policy active.

The original amount borrowed or invested, before any interest is added.

A one time charge a lender takes for handling your loan application, usually a small percentage of the loan.

Recurring Deposit. You deposit a fixed amount every month for a set period and receive the total plus interest at the end.

A tax rebate that reduces the tax of resident individuals whose income is below a set limit, which can bring their tax to zero.

The rate at which the Reserve Bank of India lends short term money to banks. Changes in it influence loan and deposit rates across the economy.

Systematic Investment Plan. Investing a fixed amount in a mutual fund at regular intervals, usually monthly.

A flat amount subtracted from salary income before tax is worked out, with no proof needed.

The amount an insurer agrees to pay if the insured event happens, for example the cover in a term insurance policy.

An extra percentage added to income tax for people with high incomes.

The length of time of a loan or investment, usually in months or years.

A pure life cover policy that pays the sum assured to your family if you die within the policy term. It has no maturity payout.

Tax Deducted at Source. Tax withheld by the payer, such as an employer or bank, before paying you, and deposited with the government on your behalf.