Understanding of Financial Terms Part 2 + Video concept

By BYJU'S Exam Prep

Updated on: September 25th, 2023

Dear readers,

Today we are presenting you with an article on “Financial Market Terms Part II”. The article is very important for upcoming exams like SBI PO, RBI Grade B, SBI Clerk & Insurance exams. For more clarity of the article, we have provided the link to the ‘VIDEO‘ in which we have discussed the article in a lucid way.

 Equity investment


Definition – A company invests investor amount, in shares of other listed company, in order to maximize return is known as the equity investment.

Let us understand the concept with an example:

  • Rahul purchases one HDFC dividend Fund. He invested Rs. 1 lakh in the HDFC Dividend Fund.
  • HDFC will invest Rahul’s Rs. 65000 amounts in shares of leading companies (like TCS, Infosys, Wipro (assume).
  • Return will be high but at the same time risk in this investment is also high.
  • Profit from an investment is paid to Rahul in the form of a dividend (i.e. also known as share in profit).
  • A dividend can be paid (a) monthly (b) Quarterly.

Dividend – A sum of money paid regularly (quarterly, annually) by a company to its shareholders out of its profits (or reserves) is known as a dividend

Outstanding share


Definition – The total number of shares owns by a shareholder, of a company, for a specific period of time, is known as Outstanding shares.

 Let us Understand the concept with an example

  • Three friends Rahul, Sahil and Parul own some shares of Infosys company.
  • Rahul owns 200 shares whereas Sahil owns 500 shares and Parul owns 800 shares of Infosys. 

What did this data tell us?

  • The total number of shares owns by different investors in company i.e. Infosys. This holding of shares is known as Outstanding shares.



Definition – The state in which any company is legally responsible for expenses like expenses on (a) operating (b) employees (c) maintenance of company and fund offered to the public (in this case) are known as Liabilities.

  • To maintain the fund, a certain expense is must, that is what? Liabilities.
  • To pay salary to the fund manager or one who manages the fund and invest in better return tool, the certain expense is must, that is what? Liabilities.

Mutual Funds


Definition – A mutual fund collects money from investors and invests the money on their behalf. It charges a small fee for managing the money.

  • For regular investors, mutual funds are an ideal investment specially for those who don’t know much about investing. Investors can choose a mutual fund scheme based on their financial goal and start investing to achieve the goal.
  • For a common man, mutual funds are one of the most viable investment options as it offers various opportunities to invest in a diversified, professionally managed basket of securities at a relatively low cost.

 Let us Understand the concept with an example:

  • Mr A is fund manager of HDFC. He is professionally accredited to manage the fund, invested by clients, in HDFC.
  • He invests fund of Rahul (assume) (20%) in debt i.e. Bonds and (80%) in shares of other company i.e. Equity.
  • Here, Mr A is managing and investing the fund taking consideration of risks and returns both. The fund is known as Mutual Fund.

 Two types of mutual fund scheme:

1. Equity mutual fund scheme – These schemes invest directly in stocks. These schemes can give superior returns but can be risky in the short-term as their fortunes depend on how the stock market performs.

2. Debt mutual fund schemes: These schemes invest in debt securities. Investors should opt for debt schemes to achieve their short-term goals that are below five years.

Fixed Maturity Plan


Fixed Maturity Plan invest completely in debt instrument i.e. fixed income i.e. 100% debt and 0% investment in shares of other listed company.

  • Investment in Certificate of Deposits, Commercial Paper, Treasury Bill, Bonds etc.
  • The risk is zero here, but the return is also low.

Monthly Income Plan


Definition – Income Plan, that invests 80% in debt i.e. fixed income and 20% in equity or shares of other listed company, having zero risks, known as MIP (or Monthly Income Plan).

  • Debt ratio may increase with a decrease in equity ratio.

Let us understand the concept with an example

  • Rahul is an investor and he invests in share market. He purchases one income plan by SBI that (a) invest 80% in debt instrument (i.e. Bonds, Treasury bills etc.) and (b) 20% in shares of the different listed company.
  • So, what we understand?
  • The risk is very low in this income plan of SBI. It is very useful for Senior citizens or person with no income (like us student). This income plan is known as MIP (or Monthly Income Plan).

Asset Management Company (AMC)


Asset Management Company is a financial institution that manages the investment of both individual investor and companies.

Asset management company perform a variety of tasks like:

  •  Investment advise to investors
  • Market Forecast and alerts investors according to it.
  • Fund implementation strategies
  • Fund Portfolio (or Bag of Investment) analysis.
  • Example of AMC is HDFC Mutual Fund.

Net Asset Value (NAV)


Formula: Total asset – Total Liabilities / Total number of units owned by a shareholder.


  • Here Asset is total valuation of fund holding (or invested money in Bonds, Shares, Fixed income securities etc.)
  • And Liabilities are expenses (Like to maintain the fund, money require and to pay fund manager amount to require or other key official’s money require are all expenses). 

Net asset value is used in calculating your fund investment current value.

Let us assume:

  • Mr A invested Rs. 50,000 in HDFC Direct Fund Dividend option (profit is shared monthly).
  • The current valuation of a fund will be determined from Net asset value?
  • The Net Asset Value of fund is Rs. 33
  • So, the total number of the unit held by Mr A is  50,000/33 = 1515
  • The Net Asset Value of fund is increased to Rs. 35
  • So, the increase amount is = 35×1515 = Rs. 53025
  • Then the Current value of a fund is Rs. 53025
  • Mr A profit in a fund is Rs. 3025.


Click here to watch Video on above article

Also Read

Understanding of Financial Market Terms Part 1 

Click here to Watch Video on Part I


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