Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.
This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.
Day 60: Basic Stock Market Concept
What is “Assessment Year” and why should
Newbies understand it?
In India, “Assessment Year” (AY) is the year when the government
looks back at your income from the previous “Financial Year” (FY) and levies
tax on it. For example, if you earned money between 1 April 2024 and 31 March
2025 (that’s FY 2024-25), then AY 2025-26 is when you’ll file returns and pay
any tax due for that FY.
You must file your Income Tax Return (ITR) during the Assessment
Year, based on your income, expenses, deductions etc., from the 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗬𝗲𝗮𝗿.
Why it Matters:
Helps you plan your taxes and investments properly.
Missing deadlines in AY can bring penalties or late fees.
If you see financial data or stock-related earnings, knowing AY
vs FY helps you match periods properly, especially for dividends or profit
reporting.
What does “Liquidity” mean in Investing and
Finance?
Liquidity refers to how quickly an asset or investment can be
turned into cash without losing much value. For example, money in your bank
account or shares of a large company are highly liquid—they can be sold fast
and at close to market price. A building or specialized piece of machinery is
less liquid—it takes longer to sell and may need discounting.
Why it Matters:
As an investor, you want the ability to exit or sell when
needed—liquidity gives you flexibility.
Low liquidity means risk: you might be forced to sell at a bad
time or accept lower price.
Liquidity affects how markets behave—during crashes, very liquid
assets drop less, because people can buy/sell easily.
What is a Current Account Deficit and why should
I Care?
A “current account deficit” (CAD) happens when a country spends
more on foreign trade (goods + services), foreign income, and transfers than it
earns from abroad. In simple terms, it imports more than it exports plus other
foreign income.
Why it Matters:
It means a country must borrow or use reserves to make up the
difference.
A persistent CAD can impact the currency value and cause
inflation.
For investors, CAD influences how stable the local currency is,
and how foreign investors view the country’s risk.
What is Insurance Float, and why is it
Interesting for Investors?
Insurance float refers to the money that insurance companies
hold temporarily between collecting premiums and paying out claims. During that
time, they invest these funds. Essentially, the insurer uses other people’s
money for a period.
Why it Matters:
If invested intelligently, float becomes a source of profit
beyond insurance operations.
Famous investors (like Warren Buffett) have used float to scale
investments.
Float size and management quality tell you about an insurance
company’s financial strength.
What is Disposable Income and how does it
tie into Investing?
Disposable income is the amount of money you have left after
paying all taxes and mandatory expenses (like basic living costs). It’s the
money you can choose to save, invest, or spend as you like.
Why it Matters:
It sets the limit on how much you can safely invest each month.
More disposable income means more ability to build investment
habits without hurting your daily living.
Knowing your disposable income helps you plan realistic
investment goals.
What is a Currency Peg, Simply Explained?
A currency peg means a country fixes its currency’s value to
another stable foreign currency (like the U.S. dollar) or a basket of
currencies. The central bank intervenes—buying or selling—to keep its currency
roughly at the pegged rate.
Why it Matters:
It reduces exchange-rate risk for businesses and investors when
trading internationally.
It helps stabilize inflation by avoiding wild currency swings.
But it limits how much the country can adjust interest rates or
respond to external economic shocks.
What does “Price Discovery” mean in the
Stock Market?
Price discovery is the process by which the market finds the
“right” price of a stock (or asset) based on supply and demand. Buyers’ bids
and sellers’ asks compete, info is released (earnings, news, macro factors),
and trading happens until a price emerges that balances both sides.
Why it Matters:
Prices reflect real-time perceptions about value.
It helps you understand why stock prices change—even before
financial reports arrive.
As a trader or investor, watching how price discovery unfolds (volume,
new info, order flow) can give signals about trend strength or reversals.
What is an Oligopoly, and how does it
affect Industries and Investment?
An oligopoly is a market structure where a few large firms
dominate the industry. They often set prices with awareness of each other’s
actions. Think of telecom, airlines, or large energy companies in many
countries—only a handful of big players control most of the market.
Why it Matters:
In oligopolies, profits tend to be more stable because
competition is limited.
Barriers to entry are high; new firms find it hard to compete.
Investors in oligopolistic firms may enjoy predictable returns
and less risk of price wars (though regulation risk can be higher).
What is Wholesale Inflation, and what
should New Investors know about it?
Wholesale inflation (often measured by the Wholesale Price
Index, WPI) tracks how much prices change for goods sold in bulk—before they
reach the retail consumer. Think of raw materials, industrial inputs, fuel etc.
Why it Matters:
It acts like an early warning sign: if wholesale costs rise
significantly, that cost often filters down to retail prices.
High wholesale inflation can squeeze company margins—if they
can't pass costs to consumers.
Investors monitor wholesale inflation to anticipate central bank
policy responses, input-cost pressure, and margin squeeze.
What is a “Bad Bank,” and why do Systems
adopt it?
A “bad bank” is a financial structure (or entity) created to
take over non-performing, bad loans and assets from a regular bank. Think of it
as cleaning up the “toxic” parts so the original bank can focus on “good”
assets and regular business.
Why it Matters:
It allows the original bank to reduce risk, free up capital, and
resume healthy lending.
Investors gain clarity—knowing which assets are healthy versus
under stress.
Regulators may push for bad banks when banking systems burdened
with bad debt need repair.
if you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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