Investment glossary

Accounting dates

The dates when accounts of an investment fund are finalised. The level of income from a fund is calculated for distribution to shareholders or for accumulation at that time.

Accumulation shares

Shares where the income from a fund is reinvested back into the fund rather than being distributed to shareholders. This increases the value of your holding.

Actively managed

A term used to describe a fund which tries to outperform a certain benchmark by frequently trading its assets off professional expertise.

Annual management charge (AMC)

A fee charged for the day-to-day management of a fund based on a percentage of a fund’s value.

Asset type

Also known as an asset class, it’s a term used to describe where your investments are held. This could be in equities, bonds, property, cash or commodities, to name a few.

Bid/offer spread

The difference between the ask price for an asset, the lowest point at which someone is willing to sell their assets, and the bid price, the highest price a buyer is willing to give for these assets.

Bonds

A loan issued by a company or Government. During the bond’s tenure, you’ll receive regular interest payments based on the coupon rate. On maturity, the original capital is repaid at face value. However, you can lose money on bonds if they’re traded on a secondary market or if your issuer defaults.

Read our guide on Government Bonds.

Collective investment schemes

A general term for unit trusts, OEICs, investment funds and investment trusts. To be considered a collective investment scheme, the scheme needs to pool money together from several investors and invest it on their behalf.

Commodities

Raw materials used as a store of value or in the production of goods. Examples of commodities include oil, metals and gold.

Credit rating

Before taking out a bond with a company or country, an investor would look at its credit rating. This is a score given by an independent agency, like Fitch or Moody’s, to the bond’s issuer. Typically starting at AAA, these ratings give you a brief overview on the issuer’s ability to repay the bond with interest.

Cryptocurrencies

An unregulated and decentralised currency which is stored online. Examples of cryptocurrencies include Bitcoin. 

Read more on cryptocurrencies. 

Derivatives

Investments which gain or lose value on changes in an underlying asset or security.

Discount

Used to describe a share of a unit’s price which is trading at less than its worth.  

Distribution

Income generated from an investment.

Diversification

Spreading your investments across a range of asset classes. Used to protect your money from volatility. (See volatility).

Dividend

A payment made by companies to their ordinary shareholders, generally based on their profits. Dividend payments aren’t guaranteed. Shares held indirectly via investment funds pay their dividends to you via distribution (see above).

Dual pricing

Used for assets with an ask and bid price. See above for Bid/offer spread.

Earnings per share

A tool used to calculate the expected dividend per share.

Ethical funds

Funds which don’t only aim to grow but have a secondary goal to support a particular cause on a “moral” level.

Find out what are the best ethical funds.

Equities

Shares or stocks in a company that give ownership interests to holders, including rights to vote and receive share dividends. Different types of shares exist giving different rights and obligations.

Exchange traded funds (ETF)

An investment designed to track the performance of a particular market segment or theme. They’re traded on a stock exchange and can therefore be bought at a discount or premium.

Read more on ETFs.

Fiat currency

A currency which isn’t backed by a tangible asset. The pound, for example, is a fiat currency.

FTSE 100

An index which comprises the 100 biggest listed companies in the UK by market capitalisation. See market capitalisation. 

Gilts

A Government bond issued by the UK Government.

Hedging

An investment made with the intention to offset potential losses involved in an alternate investment.

Initial charge

A fee charged on the purchase of shares or units in a fund based on the value of the initial investment.

Income units

Units in investment funds that pay out an income based on the fund’s distribution.

Investment grade

Bonds issued by a company with a higher credit rating, and which are therefore considered more secure.

Investment trust

An investment trust is a type of collective investment where you buy shares in a company that earns money by investing its capital elsewhere. Investment trusts differ from OEICs and unit trusts in that they’re close ended and there are only a limited number of these shares. This means you can only invest in an investment trust if there’s a willing seller. Unlike an OEIC, the trust company must be quoted on a Stock Exchange.

Liquidity

Refers to an investment which can be sold quickly without its price becoming too volatile. 

Market Capitalisation

A method to determine the size of a listed company. It is usually calculated by multiplying the price of a single share in the company by the total number of outstanding shares.

Net asset value

A fund’s total assets minus its liabilities. It is usually expressed as a per share/unit figure, which means you can use it to determine if the fund is trading at a premium or discount. See premium and discount. 

OEIC

Short for open-ended investment company. A type of collective investment where investments are pooled with other investors in the fund. The fund manager will use this money to buy investments, such as stocks and shares, in line with the objectives of that fund. The value of shares in the fund relates directly to the underlying value of these investments. OEICs differ from unit trusts in that they’re structured as a company. You’ll therefore buy shares in an OEIC and units in a unit trust.

Passively managed

A fund which attempts to match a certain benchmark and doesn’t necessarily require constant work from a fund manager.

Pound cost averaging

Instead of buying a share with a one-off lump sum you could drip feed this money into the share over time. This means you’ll buy it at various price fluctuations and therefore at an average for the period. This strategy is to safeguard your investment from falling sharply off a one-off lump sum deposit.

Premium

Used to describe a share or unit’s price which is trading at more than its worth.

Price to earnings ratio

A strategy used to determine the worth of a stock. It’s calculated by dividing the latest stock price by the company’s earnings per share. After accounting for the frequency at which these dividends are paid you’ll get a basic snapshot of how long you’ll wait until you recoup the value of a share through dividends.

Profit bonds

A with profits bond is an investment where your money is pooled together by a fund and invested in a variety of asset classes. You’re then paid a “bonus” at the end of the year depending on how the fund performs. This differs from other investments, like unit trusts, in that your bonus is “smoothed”. Therefore, when the fund outperforms its objectives it typically stores this money away instead of paying it out in bonuses. Then, in periods of economic downturn, it can use some of these reserves to bolster its bonuses. This means your bonuses aren’t always guaranteed.

Property

Investing in buildings and land. You can invest in property through a buy-to-let strategy or a Real Estate Investment Trust (REIT).

Share

Equities or stocks that give ownership interests to holders, including rights to vote and receive share dividends. Different types of shares exist giving different rights and obligations.

Stamp duty reserve tax (SDRT)

A tax on share purchases by individuals or fund managers. Up to 0.5% SDRT is charged on transactions in shares in a fund. SDRT is only payable on funds that invest in UK shares.

Stocks and shares ISA

A stocks and shares ISA is also called an investment ISA, and any returns are not liable for Capital Gains Tax. An investment ISA comes with greater risk as you could lose your initial investment and returns are not guaranteed.

Learn more about stocks and shares ISAs. Read investment ISAs versus cash ISAs and how to move your cash ISA to a stocks and shares ISA.

Stock exchange

A place where shares are bought and sold. In the UK the official stock exchange is the London Stock Exchange.

Sub-investment grade bonds

These tend to be issued by a company that has a lower credit rating and so a greater possibility of failing to make their repayments (those with the lowest rating may be referred to as junk bonds).

Unit trust

A type of collective investment scheme where you purchase units in a fund which holds a set of underlying assets. Each unit is an equal share of the value of the fund. The number of units can fluctuate and funds can be dual priced. 

Read more on unit trusts.

Valuation point

The point in time each day where the unit price of units in a fund is calculated, leading to the overall value of the fund being established.

Volatility

The measure of how an asset's price changes over time. Generally, a measure to assess risk. The more volatile a fund is, the higher the investment risk involved. Certain types of funds will be more volatile than others. For example, emerging markets funds or funds investing in small companies are typically more volatile than others.

Yield

A measure of return from interest or dividend income expressed as a percentage of an asset's price. If a bond is bought at a low price, its yield will be higher.