NCFM Financial Markets (Beginners) key terms

The segment where a company issues new shares to investors and receives the money directly, as in an IPO or follow-on offer. Proceeds go to the issuer, not to other shareholders.

The exchange-based market where already-issued securities trade between investors after listing. The issuer receives no money here; price discovery happens between buyers and sellers continuously during trading hours.

A company's first sale of shares to the public, accompanied by listing on an exchange. It converts a privately held firm into a listed one and raises growth capital from retail and institutional investors.

An offer document filed before a public issue that omits the final price and issue size. It discloses risk factors, business details and financials so investors can assess the offer before bidding.

A price-discovery process in which investors bid at or within a stated price band over several days. Demand at each price is recorded and the issuer sets the final cut-off price based on the book.

The final issue price discovered at the close of book building, at or below the top of the price band. Retail bidders may apply at the cut-off without naming a price, accepting whatever price is discovered.

The floor and cap between which bids are accepted during book building. Bidding outside the band is rejected, and the final cut-off price must fall within it.

A qualified institutional buyer allotted shares in a public issue a day before the offer opens, above the retail price, subject to a lock-in. Their participation signals demand to other bidders.

The condition where bids received exceed the shares on offer, often expressed as a multiple such as 12 times. Heavy oversubscription usually signals strong demand and can lead to allotment by lottery.

A mechanism where a retail bidder's bank funds are blocked rather than debited when applying for an issue. Only the amount for shares actually allotted is taken, and the rest is released.

The total market value of a company's listed shares, calculated as current share price multiplied by shares outstanding. It is used to classify companies as large, mid or small cap and to weight indices.

The proportion of listed shares available for public trading, excluding holdings of promoters, governments and locked-in strategic investors. Free-float weighting prevents illiquid blocks from dominating an index.

A statistical measure tracking the price performance of a defined basket of securities using a weighting method. It serves as a market benchmark, a basis for index funds and the underlying for derivatives.

A market-wide halt triggered when an index moves by a preset percentage, pausing trading for a defined period. It is meant to give participants time to absorb extreme moves and reduce panic.

A daily limit, usually a percentage of the previous close, within which a stock may trade on the exchange. Hitting the upper or lower limit halts trading in that stock for the session.

A dedicated exchange segment for small and medium enterprises to list and raise capital with lighter compliance requirements. It gives SMEs access to public markets and investors a regulated SME equity avenue.

A participant obliged to quote both buy and sell prices in a security, providing liquidity and narrowing spreads. On SME platforms and illiquid derivatives, their continuous quotes keep trading viable.

The gap between the highest price a buyer will pay and the lowest price a seller will accept. A narrow spread indicates liquidity; a wide one raises trading costs for investors.

The ease with which a security can be bought or sold in size without moving its price significantly. It depends on trading volume, order-book depth and the number of active participants.

The per-unit value of a mutual fund's assets minus liabilities, computed at the close of each business day. Investors buy and redeem units at NAV, which reflects the underlying portfolio's market value.

A mutual fund that issues and redeems units continuously at NAV on request. It has no fixed corpus or exchange listing, so investors transact with the fund house rather than with other investors.

A mutual fund with a fixed corpus and a fixed maturity, whose units are listed and traded on an exchange after the initial offer. Investors exit by selling units in the market, not to the fund.

The annual percentage of a fund's average assets charged to unitholders for management, administration and distribution costs. It directly reduces returns, so a lower ratio is preferable for the same strategy.

A facility to invest a fixed amount into a mutual fund at regular intervals, such as monthly. It averages purchase cost over time and builds discipline, though it does not guarantee profits.

The effect where fixed periodic investments buy more units when prices are low and fewer when high, lowering the average cost per unit over a full cycle. It is the outcome SIPs are designed to capture.

A mutual fund or exchange-traded fund that replicates an index by holding its constituents in similar weights. It offers low-cost passive exposure and tracks the benchmark's returns before costs.

The standard deviation of the difference between a fund's returns and those of its benchmark index. It measures how closely an index fund or ETF follows the index it aims to replicate.

A category of institutional investor, such as a mutual fund, insurer or foreign portfolio investor, allowed to bid in the institutional portion of public issues and in certain restricted schemes.

An exchange-traded agreement to buy or sell an underlying asset at a set price on a future date. Both parties are obligated to perform, and positions are marked to market daily.

A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a stated strike price before expiry. The buyer pays a premium; the seller bears the obligation.

The fixed price at which an option holder may buy or sell the underlying asset. Whether an option is in, at or out of the money is determined by comparing the strike with the spot price.

The price an option buyer pays the seller for the rights conveyed by the contract. It has intrinsic value plus time value and is the maximum amount a buyer can lose.

The amount by which an option is in the money, being the excess of spot price over strike for a call, or strike over spot for a put. It is never negative and ignores time to expiry.

The daily settlement practice of revaluing open derivative positions to the closing price and crediting or debiting the resulting profit or loss. It prevents losses from accumulating unchecked.

Collateral deposited with a broker or clearing house to cover potential losses on a derivative position. Initial margin opens the position; variation margin settles daily mark-to-market movements.

Exchange-traded contracts to buy or sell a foreign currency against the domestic currency at a future date. They let importers, exporters and traders hedge or take views on exchange-rate moves.

A privately negotiated agreement to exchange an asset or currency at a fixed price on a future date. Unlike futures, it is not standardised or exchange-cleared, so it carries counterparty risk.

Taking an offsetting position in a derivative to reduce exposure to price, rate or currency movements. It transfers risk rather than eliminating it, and usually forgoes potential gains too.

Exchange-traded contracts for physical commodities such as gold, crude oil or agricultural produce, settled on expiry or squared off earlier. They support price discovery and hedging by producers and users.

An over-the-counter agreement to exchange fixed and floating interest payments on a notional principal for a set period. It is used to convert fixed-rate exposure to floating, or the reverse.

Exchange-traded contracts whose value moves inversely with interest rates, used to hedge or speculate on bond and money-market rate changes. They are standardised and cleared by the exchange.

The return an investor earns from a bond, usually expressed as an annual percentage of its price. Yields rise when bond prices fall, so the two move inversely in the market.

The fixed annual interest a bond issuer promises to pay, stated as a percentage of the face value. It is set at issue and does not change with market prices.

The present value of a bond's future coupon payments and principal, discounted at prevailing market yields. It moves inversely to yields and converges to face value as maturity approaches.

The total annualised return an investor earns by holding a bond to maturity, assuming coupons are reinvested at the same rate. It equates the present value of all cash flows to the current price.

An independent agency's assessment of an issuer's ability to meet debt obligations on time. Higher ratings imply lower default risk and usually allow the issuer to borrow at lower yields.

A debt instrument typically secured by the issuer's assets, paying fixed interest and repayable on maturity. Debenture holders rank above equity shareholders for repayment if the company is wound up.

The reference amount on which derivative payments such as swap interest are calculated, without usually being exchanged itself. It sets the scale of cash flows between the counterparties.

The investigation of a company's business, finances and legal affairs before an issue or listing. It underpins the disclosures in the offer document and protects investors from misstatement.