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Glossary

Annualised
A rate of return for a given period that is less or more than one year, but that is adjusted to show the return this would equate to over a 1 year period.
Basis point (bp)
On-hundreth of one percent, i.e. 1% is equal to 100 basis points.
Cash Reserve Ratio (CRR)
Banks in India are required to hold a certain proportion of their deposits (NDTL) in the form of cash. However, actually Banks don’t hold these as cash with themselves, but deposit such funds with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with RBI.
Certificates of deposit
A certificate of deposit, or CD, is a bank-issued investment instrument where a bank typically agrees to repay the principal plus interest on a fixed maturity date. CDs are typically negotiable, meaning they can be sold on the secondary market, allowing the principal and accrued interest to be redeemed before maturity.
Commercial paper
Commercial paper, or CP, is a short-term, unsecured promissory note. It is usually issued in bearer form, meaning it is a negotiable instrument. By issuing the paper, the issuer promises to pay the bearer the face value of the paper on a fixed maturity date. CP is usually issued at a discount.
Corporate Bonds
Debt instruments issued by companies which can vary in maturity from less than one year to over 20 years. These are typically issued in bearer form, meaning they are negotiable. Debt funds may use corporate bonds in certain circumstances where they meet clear maturity and credit requirements and the investment manager determines that there is sufficient secondary market liquidity.
Credit rating
A standardized assessment, expressed in alphanumeric form, of the credit worthiness of an entity raising debt capital. Ratings are issued by credit ratings agencies based on their published methodology for rating the relevant instrument.
Credit Rating Agency
Independent institutions that assess the creditworthiness or credit risk of issuers and provider credit ratings which are publicly available and used by investors as well as analysts as a guide for investment decisions.
Credit Risk
The risk than an issuer of a debt instrument will fail to repay, in whole or in part, the principal and/or accrued interest to the investor. Where a money market fund holds the debt of an issuer which has defaulted, the final recovery value will be impacted by the standing of the security held in insolvency proceedings.
Dividends
Distributions, representing income earned less expenses, paid either in cash or additional shares by a fund.
Interest Rate Risk
The risk that the yield on a money market fund lags behind the relevant Central Bank's reference rate. Money market funds take positions on duration and, as a result, their portfolios do not match the 'market' in general. Consequently, then the market moves (e.g. becuase of an interest rate movement), it can take some time for a money market fund to readjust its portfolio, which can result in an interest rate lag.
Liquidity Risk
• The risk that a security cannot be sold immediately without realising a loss.
• The risk that a money market fund has insufficient liquid assets to meet redemptions.
Mark-to-market price
The value of an asset based on the market price at a given point in time, i.e. the tradeable value of each security.
Modified Duration
A formula that expresses the measurable change in the value of a security in response to a change in interest rates.
Repo rate
The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI.
Secondary market
The market where investors can buy and sell securities from other investors, rather than directly from the issuing company.
Settlement
The exchange of securities between buyer and seller and the corresponding transfer of money between the two contractual parties.
Settlement date
The date on which a security transaction is settled i.e. payment is made and securities are delivered. In reference to an investment in a money market fund, this is the date on which subscription proceeds must be sent to the fund or that redemption proceeds must be paid by the fund to the redeeming investor.
Short term debt instruments
Fixed income securities with initial or remaining maturities ranging from 12-18 months or less. Examples include, commercial paper, medium term notes, variable rate notes, floating rate notes, bankers acceptances, government bonds, treasury bills, Eurobonds, asset backed security and corporate bonds.
Statutory Liquidity Ratio (SLR)
Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.
Weighted Average Maturity (WAM)
The weighted average days to maturity of a portfolio of securities, based on the reset date of floating rate instruments, and the final maturity of other instruments.
Yield
The annual rate of return from income paid out on an investment in securities or a money market fund, expressed as a percentage of the current market prices of the relevant securities.
Yield curve
A graphical representation of demonstrating the relationship between between yield and maturity on comparable debt securities with different maturities, usually for a single issuer or a very closely related group of issuers.