5 Personal Finance Terms You Must Know - Part 2
We love making money, but do we understand all about it? The cost of financial illiteracy is steep, but we won’t let that happen to you.
Finance is a topic that’s so popular that we had to write about it twice. No, seriously, we have written about it before, and you loved it so we thought we’d come up with more. Financial literacy is the need of the hour. As the economy changes rapidly, it is time that we understand financial terms in our daily lives.
If fancy financial terms make you fumble, it is about time that we rumble with simplifying and explaining 5 (more) financial terms that you must know. So let’s take a look at some financial lingo.
Amortisation is a process and accounting technique that is used for debt repayment in orderly portions over a period of time. Lending agencies calculate this amount based on the loan amount and interest rate. In this process, a loan amount is spread into a series of fixed payments.
For example, you take a loan worth 12L at 10% interest rate for a period of 10 years. Now every month, you’ll pay an installment towards your loan. This installment includes the principal due and the interest. Paying your EMIs regularly reduces the overall principal amount and this process is known as amortisation.
Liability is both a financial term and a general noun. To be liable is to be responsible for someone or something. In financial terms, however, liability is usually an obligation, debt, or amount of money that an individual or an organisation owes another individual or a business. It includes things such as bank loans, mortgages, and credit card debt, etc.
3. Mutual Funds
Mutual funds are a type of financial instrument that pools funds from many investors to form a common pool of funds. The collective funds are then invested by a company in a variety of assets such as stocks, bonds, and other securities.
To invest in mutual funds, you can either contact your bank, visit the website of the mutual fund you’re interested in or liaison with financial intermediaries. The average yield of mutual funds in India is about 11.54%. Some of the different stock exchanges in India are listed below:
1. BSE Ltd.
2. National Stock Exchange of India
3. Calcutta Stock Exchange Ltd.
4. Metropolitan Stock Exchange of India
5. Indian Commodity Exchange Ltd.
If you're wondering where is part 1, you are in luck! Click here to read the first part.
Stocks are a type of investment also known as equity. It gives an investor a fraction of ownership in the issuing company. A unit of stock is called a share, and it can be traded on the share market.
To buy a stock of any company, you need to register with an online stock broker. There are several apps that help you buy stocks online with ease.
5. Indirect taxes
Indirect tax is the tax an individual pays indirectly to the government via payment of goods or services. GST is the best example of an indirect tax, where a person pays GST for a product or service to a seller, which then gets delivered to the government. Customs Duty and Service Tax are the other two common examples of indirect tax.
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