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Glossary:20 Personal Finance Terms Everyone should know
20 personal finance terms you should know)
1. Direct taxes
Direct taxes are the taxes you pay directly to the government. For instance, income tax is a direct tax.
2. Indirect taxes
Indirect taxes are taxes that are collected and paid to the government on your behalf. For instance, GST is an indirect tax.
3. Heads of income
The Income Tax Act, 1961 classifies the income earned by an individual under the following five different heads.
- Income from salary
- Income from house property
- Profits and gains from business or profession
- Capital gains
- Income from other sources
4. Total income
The sum of the income under all the five heads of income is classified as the total income for the year.
5. Deductions from total income
Before you can calculate the tax on your total income, you’re eligible to make certain deductions from that figure. These are termed as ‘deductions from total income’ and are available under the various subsections of Section 80 of the Income Tax Act, 1961.
6. Total taxable income
Once the deductions have all been made from the total income, you’re left with what is termed as the ‘total taxable income.’
7. Provident Fund (PF)
Employee Provident Fund, also referred to as just PF or provident fund, is an investment scheme that has been developed by the government of India to help employees in the organised sector save up for their future.
8. Public Provident Fund (PPF)
PPF or Public Provident Fund is a scheme that’s backed by the government of India. Like the EPF scheme, PPF is also a retirement-focused investment option. Anybody can invest in PPF – salaried or self-employed. PPF also offers a fixed rate of interest on the amount invested.
9. Life insurance
Life insurance is a legal contract between an insurance company and a party seeking insurance. The insured person pays the insurance company a premium. In return for this, the insurer pays out a sum of money to the nominees or legal heirs upon the death of the insured.
10. Term insurance
Term insurance is the most basic and affordable form of life insurance. It only provides a life cover and offers no additional savings or benefits.
11. Endowment plans
Endowment plans are just like term insurance, except that they offer one added advantage – maturity benefits. The insurance company pays out the ‘sum assured’ on the death or survival of the insured person, so there’s a guaranteed savings element.
12. Unit Linked Insurance Plan (ULIP)
A Unit Linked Insurance Plan offers the dual advantage of both insurance and investment. The insurance company invests a part of your premium in the stock markets, while the other part goes towards providing you with a life cover. ULIPs are ideal choices for risk-friendly investors who also seek a protective life cover.
13. General insurance
General insurance is a protective cover that’s offered by an insurance company for assets other than life. Similar to a life insurance, the policyholder will have to pay a premium to the insurance company.
14. Health insurance
Health insurance is a protective cover that offers the insured person financial support and coverage for a wide range of diseases, illnesses, ailments, and medical procedures.
15. Home insurance
Home insurance policies provide the insured with financial coverage in the event of any damage or loss related to your house. It helps you safeguard your asset.
16. Motor insurance
Motor insurance policies are designed to offer financial coverage in the event of any damage or loss related to your motor vehicle.
17. Travel insurance
Travel insurance is a general insurance policy that is designed to give the insured financial support to mitigate risks and losses occurred during travelling. Some travel insurance policies also cover medical costs for illnesses and injuries sustained during travel.
18. Commercial insurance
Commercial insurance policies provide financial support and coverage to the insured person for the risks associated with a business. The risks can be anything from theft and lawsuits to workplace injuries and other losses.
19. Mutual funds
A mutual fund is a kind of investment where the funds from many investors are pooled together to form a common pool of money. This collective amount of capital is then invested in a variety of assets, depending on the kind of mutual fund and its investment objective.
20. Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme is essentially a mutual fund, where a major portion of the investor’s funds is invested in equity and equity-related instruments.
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