1.A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Also referred to as “Dividend Per Share (DPS)”.
2.Mandatory distributions of income and realized capital gains made to mutual fund investors.
Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but he dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.
Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders. In addition, realized capital gains from the portfolio’s trading activities are generally paid out (capital gains distribution) as a year-end dividend.
For call options, this is the difference between the underlying stock’s price and the strike price. For put options, it is the difference between the strike price and the underlying stock’s price. In the case of both puts and calls, if the respective difference value is negatice, the instrinsic value is given as zero.
Intrinsic calue in options is the in-the-money portion of the option’s premium. For example, If a call options strike price id $15 and the underlying stock’s market price is at $25, then the intrinsic value of the call option is $10. An option is usually never worth less than what an option holder can receive if the option is exercised.
A valuation ratio of a company’s current share price compared to its per-share earnings.
Calculated as:
Market Value per Share
= ---------------------------
Earnings per Share (EPS)
In general, a high P/E suggests that investor are expecting higher earnings growth in the future compared to companies with a lower P/E.
However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
A credit default swap is an agreement between two parties that works like a side bet on a football game. Swap seller promise buyers a big payment if a company’s bonds or loans default. In return for the promise they get quarterly payments. Neither needs to hold the underlying debt when entering into a swap.
A group of investment which, when combined, create a zero net value. Zero-investment portfolio can be achieved by simultaneously purchasing securities and selling equivalent securities. This will achieve lower risk/gains compared to only purchasing or selling the same securities.
Investopedia explains Zero-Investment Portfolio
Zero-investment portfolios have many uses, including:
1.Reducing taxes, because they generate little or no interest income.
2.Reducing risk by protecting against unexpected shifts in the value of the held securities.
3.Protecting the overall value of the portfolio so that investment can be made at a later date.
4.Determining if the average portfolio returns are statistically different from zero.
For example, if John bought (that is, took a long position) one share of XYZ Corp., he would be fully exposed to the change in value of that stock. If, however, John sold the same stock (that is, took a short position), then any movement up or down would be canceled out. The combination of these two positions creates a zero-investment portfolio.
The EOCD is a group of 30 member countries who discuss and develop economic and social policy.
The EOCD has been called a think tank, monitoring agency, rich man’s club, and unacademic university. Whatever you want to call it, the OECD has a lot of power, as the member nations account for two thirds of the worlds goods and services.
A situation where a professional, or a corporation has a vested interest which may make them an unreliable source. The interest coud be money, status, knowledge or reputation for example. Ehen such a situation arises, the party is usually asked to remove themselves, and it is often legaly required of them.
An example of a conflict of interest would be a board member voting on the induction of lower premiums for companies with fleet vehichles when he is the owner of a tow truck companies outside of the corporation. In relation to law, representation by a party with a vested interest in the outcome of the trial would be considered conflict of interest, and the representation would not be allowed.
A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.
Stagflation occurs when the economy isn't growing but prices are, which is not a god situation for a country to be in. This happened to a great extent during 1970s, when world oil proces rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.
When a prolonged period of good economic growth and activity causes high levels of inflation (from increased consumer wealth) and inefficient supply allocations as producers oveproduce and create excess production capacity in an attempt to capitalize on the high levels of wealth. Unfortunately, these inefficiencies and inflation will eventually hinder the economy's growth and cause a recession.
Rising rates of inflation are typically one of the first signs that an economy is overheating. As a reslt, governments and central banks wil usually raise interest rates in an attempt to lower the amount of spending and borrowing. Between June 2004 and June 2006, the Federal Reserve Board increased the interest rate 17 times as a gradual means af slowing America's overheated economy.
An expresssion coined by economists to describe an economy that is growing at such a slow pace that more jobs are being lost than are being added. The lack of job creation makes it "feel" as if the economy is in a recession, even though the economy is still advancing.
Many economist believe that between 2002 and 2003, the United States' economy was in a growth recession. In fact, at several points over the past25 years the U.S. economy is said to have experienced a growth recession. That is, in spite of gains in real GDP, job growth was either non-existent or was being destroyed at a faster rate than new jobs were being added.
The phase of the business cycle when the economy moves from a trough to a peak. It is a period when business activity surges and gross domestic product expands until it reches a peak.
Also known as an "economy recovery"
An expansion is one of the basic business cycle phases. The other is contraction. The transition from expansion to contraction ir termed a "peak" and the changeover from contraction to expansion is a trough. Expansions last on average about three to four years but have been known to last anywhere from 12 months to more than 10 years. Much of the 60s was a time of expansion which lasted almost nine years.
A phase of the business cycle in which the economy as a whole is in decline. More specificaly, contraction occurs after the business cycle peaks, but before it becomes a through.
According to most economist, a contraction is said to occur when a country's real GDP has declined for two or more consecutive quarters.
For most people, a contraction in the economy can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs. While no economic contraction lasts forever, it is very difficult to assess just how long a downtrend will continue before it reverses because history has shown that a contraction can last for many years (such as during the Great Depression).
Describes the horizontal price movement that occurs when the forces of supply and demand are nearly equal. A sideways trend is often regarded as a period of consolidation before the price continues in the direction of the previous move. A sideways price trend is also commonly known as a "horizontal trend". SIdeways trend is generally a result of the price traveling between strong levels of suport and resistence. It is not uncommon to see a horizontal trend dominate the price action of a specific asset for a prolonged period before starting a move hiher or lower. Brief consolidation is often needed during large price runs, as it is nearly impossible for such large price moves to sustain themselves over the longer term.
A method of portfolio insurance in which the investor sets a floor in the dollar value of his or her portfolio, then structures asset allocation around that decision. The two asset classess used in CPPI are a risky asset (usually equities or mutual funds), and a riskless asset of either cash, equivalents or Treasury bonds. The percentage alocated to each depends on the "cushion" value, defined as (current portfolio value - floor value), and a multiplier coefficient, where a higher number denoted a more aggressive strategy.
An investment strategy that aims to balance risk and reward by appotioning a portfolio's assets according to an indiviadual's goal, risk tolerance and investment horizon.
The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.
A portfolio constructed t have zero systematic risk or, in other words, a beta of zero. Such a portfolio would have the same expected return as the risk-free rate.
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market return of an asset based on its beta and expected market returns.
Beta is calculated using regression analysis, and you can think of beta as the tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market. Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based stocks have a beta of greater than 1, offering than possibility of a higher rate of return, but also posing more risk.
The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity.
A debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency, and may represent significantly more risk to be bondholder.
The government of a country with an unstable economy will tend to denominate its bonds in the currency of a country with a stable economy will tend to denominate its bonds in the currency of a country with a stable economy.
Because of default risk, sovereign bonds tend to be offered at a discount. Brady bonds, which are issued by governments in developing countries, are a popular example of sovereign debt securities.
The amount of time left for the repayment of a loan or contract or the initial term length of a loan. Tenor can be expressed in years, months or days.
Tenor is sometimes used interchangeably with “maturity”, although tenor is not often used to describe the terms of fixed-income instruments such as government bonds and corporate bonds. Instead, non-standardized contracts like insurance policies and bank loans tend to be described in terms of tenor.
The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate.
The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as “yield” for short.
The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.
The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.While conventional financial theory describes situations in which all the player in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction.
Trends can vary in length from short, to intermediate, to long term. If you can identify a trend, it can be highly profitable, because you will be able to trade with the trend. As general strategy, it is best to trade with trends, meaning that if the general trend of the market is headed up, you should be very cautious about taking any positions that rely on the trend going in the opposite direction. A trend can also apply to interest rates, yields, equities and any other market which is characterized by a long-term movement in price or volume.
The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.
An economy is deemed to be in the expansion stage of the economic cycle when gross domestic product (GDP) is rapidly increasing. During times of expansion, investors seek to purchase companies in technology, capital goods and basic energy. During times of contraction, investors will look to purchase companies such as utilities, financials and healthcare.
An agreement that gives an investor the right (but not obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. A call becomes more valuable as the price of the underlying asset (stock) appreciates.
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the expiration date. Then an individual purchases a put, they expect the underlying asset will decline in price. They would then profit by either selling the put options at a profit, or by exercising the option. If an individual writes a put contract, they are estimating the stock will not decline below the exercise price, and will not increase significantly beyond the exercise price.
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder).The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (excercise date).Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset. In terms of speculation, option buyers and writers have conflicting views regarding the outlook on the performance of an underlying security.
A statistical measure of change in an economy or a securities market.In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus the persentage change is more important than the actual numeric value.Stock and bond market indexes are used to construct index mutual funds and exchange-traded funds (ETFs) whose portfolios mirror the components of the index.The Standard & Poor's 500 is one of the world's best known indexes and is the most commonly used benchmark for the stockmarket.
A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all he securities in its portfolio, less any liabilities, by the number of fund shares outstanding.In terms of corporate valuations, the calculation: value of assets less liabilities equals net asset value (NAV), or "book value", is used.In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual fund's buy and sell orders are processed at the NAV of the trade date.However, investors must wait until the following day to get the trade price.Mutual Funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return.Because ETFs and closed-end funds trade like stocks, their shares trade at market value, which can be a dollar value above (trading at a premium) or below (trading at a discount) NAV.
Are you a person who always looks for the steal deal? Someone who judiciously budgets your expenses to get the best bet out of everything life can offer you? Well, then you probably must be putting in a lot of research on where you shop, when you shop and how you shop for it.
Right from the precious antique furniture piece to the lovely second hand, still in mint condition Fiat you own, everything has been bought with a great deal of thought, calculations, research and background check. Now you have decided to opt for your own house. As usual your mind is ticking about how to make this one the steal deal of a lifetime. Well, we got news for you.
Have you ever considered a home auction that is periodically conducted by several banks? You actually can get a house which is lesser by nearly 20% of the current market value. Let us help you get started on some research for you to build the plan for your steal.
How does it work The SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (54) of 2002), empowers the banks and financial institutions with the right to recover the mortgaged property in case of loan defaults, without the intervention of the court.
This means the lenders can take immediate action and bring into effect the take over of the property in question quickly. Though it seems to be at the expense of the home loan defaulter, who is not examined keenly for reasons behind the defaults, nevertheless it appears to be a good opportunity for people to buy a property for a very reasonable amount of money.
Why it could be a steal Once the lender takes control of the property, an independent valuation is conducted with the help of an independent chartered surveyor who fixes two values for the property. One is the market value of what the property is actually worth and another is termed as the distress value, which is around 15-20% lower than the market value.
Due to the circumstances under which the auction is conducted, the property is almost always quoted with the distress value for the minimum bidding price at the auction. At the auction of course the prices can go up according to the bids and the location of the property.
This gives the prospective new buyer an opportunity to win an auction for a very good deal as opposed to buying a property at the existing market value.
The market for auctioned properties It is still a very unorganized market, which is just beginning to open up as a venue for a prospective home buyer. More often than not it is currently more possibly a property investor's market rather than an end user market. Also, the proportion of commercial properties auctioned could be much higher compared to the residential properties auctioned.
Listed below are some pointers to guide you on the process and background check: A. Scrutinize property sections of newspapers Many nationalized banks periodically advertise in the popular dailies regarding auction dates, venue and the location of properties to be put up for sale. B. E-auction is also an option Some banks do announce it by the way of e-auctions, as it is a faster, more transparent medium to choose the highest bidder. It reaches out to a more wider target audience and it helps the banks sell these properties at an effective price, which will help them recover the costs incurred through the loan more efficiently.
C. Secure legal aspects As a prospective bidder you will be allowed to check the property you are planning to bid beforehand, once a caution fee has been collected from you for participating in the auction. Do make arrangements for a legal counsel to accompany you for this visit and help you with all the legal aspects of the transaction.
Though you are making a business transaction with the banks, which by itself means you will receive a legally safe and registered property, you still need to do your share of the homework.
With the help of your legal counsel, investigate the title of the documents and do your research with the registry for a track record of the past 30 years of the property to understand who were its past owners, how many hands it changed and whether there was any legal tangle in the past that needs to sorted out before your make your winning bid. Verify all municipal records, tax records, whether the current owner has sole ownership and if it can be transferred to you in accordance with the rules specified in the Transfer of Property Act.
D. Be prepared for additional costs The properties auctioned are disposed in the state they were first taken over by the banks. Hence, there might be some costs like outstanding payments due in terms of house tax, electricity, repairs, renovation etc. that need to be incurred once you purchase the property. Factor in all these aspects when you make the bid. The emotional side of it When one looks at it from the perspective of an auction for the homes of defaulters, one does feel a wave of emotion about the unconventional route to buy a home. One may wonder about the loss of one becoming the gain of another.
However, you need to treat it as nothing more than a sale transaction because you do not have to be affected over somebody else's mismanagement of finances. Moreover, not all houses are given up for auction by home owners unable to pay the loan, it could be a situation where the individual giving up the house to the bank considers it as a fixed asset that could be liquidated in an hour of need.
The excess funds from selling the house if any, would go to the previous house owner, who gave it up to the bank. Moreover, all sale transactions happen through the bank, so you need not have worries over the technical aspects of the sale. However you need to get your routine checks in place to see that you derive the benefits that ideally accompany such a steal deal.
Credit card is a useful tool, when managed judiciously but a lurking danger if you mismanage it. Currently, threatened by the global financial crisis banks are changing credit limits, doing away with interest free periods and charging higher interest rates on the credit borrowed.
One of the first things you need to keep in mind, is read the term and conditions when you apply for a credit card. It could be a laborious process but something that has to be dealt with, to protect yourself from any rude surprises that might be in store for you in times like this.
One hears stories of money being taken from the savings account of a person who has a credit card with that particular bank! Well, banks are allowed to do so, when a default occurs, the clause is covered in the terms and conditions.
Banks also have an auto debit facility to claim a minimum payment on credit borrowed, if in case your account does not have enough funds, banks are allowed to levy a fine, which could be ridiculous amount that is nearly half the amount you borrowed! For eg. It’s not funny when a fine of Rs.400 is charged for a Rs.500 credit borrowed!
Credit cards can be useful when you make a profit out of it
Profit from your credit card Credit cards can be useful when you make a profit out of it! Now, how is that possible? Well, it all depends on the kind of card you purchase, its best to opt for a lifetime free credit card that does not have an annual fee attached.
Also get a card that matches your lifestyle. If you shop a lot, see that your card offers a lot of discounts and cash back rewards for the all the shopping you do with a card.
If your job allows you to make frequent trips, get a card that gives you several travel friendly schemes on eating out, hotel stays and airline ticket discounts.
Use credit cards only when it is unavoidable
High interest rates Though the whole point of having a credit card is to provide you with cashless convenience, it makes money sense to decide, when, how and why you should use it. Never get tangled in the web of debt, especially when it comes to credit cards.>
Though its an ideal resource to tap into, when you need to ramp up funds quickly, the interest rates charged on a credit card are much higher than even those charged on personal loans. >
Remember that cash withdrawals from an ATM with your credit card will be charged a processing fee of around 2% and an even higher rate of interest than your regular purchases on the card.
Avail EMI facility to pay loan on your credit card
Taking a loan on your credit card Most credit cards do offer an EMI facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation.
However, the difference lies in the high interest rate charged, which can be as high as 30-42% as an annualized rate. The cards that offer a comparatively lower interest rate in the range of 22-26% most often do not have an EMI facility for repayments.
Though credit cards seem like a good bet for short term fund requirements refrain from using it, unless you can make the credit card usage count for some kind of benefit.
Using your credit card purchases for an interest free period is fine, however remember the bank can do away with interest free periods anytime it chooses to and also hike the interest rates, according to its free will. Hence, be wary of a credit card and use it sensibly.
Another important aspect in manging your credit card is to keep a careful tab on your credit card statement that should reach you on a monthly basis.
Scrutinize your credit card statement to understand your spending pattern
Understanding your credit card statement Scrutinize your credit card statement to understand your spending pattern. If a bill does not arrive on time for you to pay your dues report to the bank immediately. Also keep track of the credit card bill through your online banking account.
The first detail you need to clarify is your name, billing address, card number et al to make sure its correct. The second aspect is the total outstanding balance and current due date for payment.
This column will also have the previous month's transaction using the card.
Here is an example: Previous Balance: Rs 2,000 Current outstanding amount: Rs 4,000 Total outstanding amount: Rs 6,000 Payment Due date: 25/02/09
Be regular in making payments to enhance your credit score
Minimum Payment Due The date for the minimum payment due allows you to pay up a small amount upfront and this is usually in place to protect your credit score.
However, as a practice ensure that you pay the total amount due before the minimum payment due date to maintain an impeccable credit score else you will be levied interest on the balance amount pending if you continue to pay the actual amount due in full only after this due date.
If you fail to pay even the minimum amount due you will incur a late payment fee as well.
Transaction Details The second aspect to be scrutinized is the list of purchases or transactions done throughout that particular billing cycle. Go through each particular of them list to see if they match your expense records.
Usually your statement will have a reference number that can be quoted if you feel any charge specified needs to be clarified.
Utilize reference number for unauthorized charges
Utilizing your reference number for billing errors and unauthorized charges Always commit in writing within 60 days ( this time period varies from bank to bank) of the receipt of your statement the complaint regarding the billing error or unauthorized charges. Include all the following particulars in your complaint:
Your name, address, account number and reference number Error description The date and amount of the charge Reason cited for the dispute of charge Check your credit card statement if there is a specific address to which the complaint has to be sent to. This might be at the end of the statement or as part of the fine print, behind the statement.
Verify the credit card statements regularly
Your credit card statement also has the other particulars like: Credit Limit This is the maximum limit up to which you can make purchases or withdraw cash on your card. This credit limit can be revised by your credit card company depending on your credit score and your repayment track record.
Available credit limit This will be the amount you can still avail after you have made a bunch of transactions using the card. For instance, if you have a credit limit of Rs. 1 L and you have made purchases worth Rs.25,000, then your current available credit limit would be the balance, Rs.75,000.
Cash limit This is the actual cash limit up to which you can withdraw on your card, which is included in your credit limit.
Keep a check on statements provided by bank
Statement Date The billing cycle ends on a particular date after which the statement is printed, the interest rates applicable for your card transactions are calculated using this statement date as the starting point.
Total outstanding Amount Due This includes past and present credit expenses and other charges levied to your account. Reward Points Summary This provides you cash discounts and other benefits on purchases made when accumulated over a period of time. This column contains all the past points earned and utilized by you till that particular billing cycle.
Be regular in making payments to avail extra benefits
Grace Period A grace period is the number of days you might get as relief before the high interest rates start kicking in for the remainder of the amount that is due.
This can be anywhere between 20 and 25 days. However, remember you will be eligible for this grace period only if your previous month's outstanding amount has been paid in full.
Go for the grind, read the fine print Read the fine print behind the credit card statement, it will throw light on a number of curious queries you wish you had an answer to when you look at your credit card statement one fine day and find some puzzling figures there.
Understand terms and conditions associated with your credit card
Own a credit card responsibly The responsibility of learning to use your card is imperative when you own a credit card. For this learning it is important for you to understand your credit card statement and, the terms and conditions associated with your credit card policy. Armed with this learning you can make the best out of this cashless convenience.
