Category: Concepts

An American Option is an option contract that can be exercised ‘anytime’ i.e on before the expiry date. On the contrary, European Options can be exercised only on the expiry date. The premium payable on an American Option is generally higher than that of a European Option.

Clean price and dirty price are terms associated with the bond market. When bond prices are quoted exclusive of interest accrued (ex-interest), the same is termed as ‘clean price’. On the other hand, price including the accrued interest (cum-interest) is called Dirty Price. Therefore, Dirty Price = Clean Price + Accrued Interest. The concept of…

Market Capitalisation is a term which is used to define a company’s worth in terms of its market valuation. It is arrived at by multiplying the total outstanding shares of a company by its current market price. Market Capitalisation is frequently referred to as ‘Market-Cap’

The term ‘Institution’ can be defined as ‘an established organization’. Institutional Investors, as distinguished from individual investors, are ‘established organisations’ with a separate legal existence that pool contributions from various small investors and invest them into different investment vehicles to generate returns for these investors. Institutional Investors include banks, mutual funds, insurance companies and pension…

Alternative Investment Funds (AIF) are a privately pooled investment vehicle, set up as a separate entity, which collects funds from its investors for investing it in accordance with a defined investment policy for the benefit of its investors. Alternative Investment Funds raise funds from investors by way of issue of units. An AIF would often…

A Hedge Fund is an Alternative Investment Fund that pools funds from a limited number of private investors and employs aggressive investment strategies; including investment in domestic and offshore derivative products, to maximise returns for its investors. Hedge Funds typically are subject to less stringent regulatory control and disclosure requirements than other collective investment schemes…

Factoring is an arrangement under which a business house outsources the collection of its book debts to an external entity (a factor) against the payment of a fee. The concept Business houses sell goods and services both in cash and on credit. Under credit sales, a credit period is offered to the buyer within which…

To have an understanding of Alpha, an understanding of the concept of Stock Beta is important. The Beta of a stock is the measure of non-diversifiable risk that the stock incorporates. It is calculated as follows: Beta = Cov (jm) / σ 2m Where, Cov(jm) = Covariance between the daily return of the individual security…

A Reverse Stock Split, as the name indicates, is the opposite of a stock-split. It is the act of consolidating of two or more shares of a company whereby the number of shares outstanding is reduced. A reverse stock split brings about an increase in the Face Value of a share.  Recommended Read: Concept of…

Deep Discount Bonds are similar to Zero Coupon Bonds. They do not carry any coupon rate i.e investors of Deep Discount Bonds do not receive regular interest payments. Deep Discount Bonds are generally issued at a discount (i.e at a price lower than the face value) and redeemed at par value. It is this difference…

Zero Coupon Bonds (ZCBs) are bonds that carry a ‘zero’ coupon rate. Therefore Zero Coupon Bonds do not pay interest to the investors. ZCBs are issued at par value and redeemed at a premium. It is this difference between the purchase price of the bonds and its redemption value i.e the premium that signifies returns…

A stock split is a term used to denote a situation where a company increases the number of its shares outstanding by reducing the face value of its shares. The concept of stock split can be better understood with an example: Let us assume that the shares of QR Ltd are currently quoting at Rs.…